UBS Group has warned of a “dangerous” financial bubble forming on the back of fresh quantitative-easing (money-printing) efforts by central banks trying to jumpstart stimulus-hungry markets, the Swiss bank’s CEO told Bloomberg TV.
Slow global growth has forced central banks to reverse course from a monetary tightening position that dominated most of 2018 to consider easing by cutting interest rates.
The U.S. Federal Reserve shaved a quarter percentage point off its benchmark rate Wednesday as an insurance policy against what could go wrong in the future, while the European Central Bank is on the verge of more stimulus for member European countries.
“I’d be very, very careful about growing further the balance sheet of central banks,” said UBS Group CEO Sergio Ermotti in a Bloomberg TV interview. “We are at a risk of creating an asset bubble.”
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Bubble bursts are usually hard to predict but anticipation among investors has seen increased interest in all manner of assets including gold.
Previous bubbles involved high tech stocks in 2000 and housing prices in 2007.
Gold prices are expected to shrug off a pullback after a rally last week that peaked at a multi-year high as investors anticipate financial markets collapsing like a sand pile by the end of the year, a global investment strategist said.
Ermotti said most of the UBS clients, including traders and investors, were holding very high cash balances as they wait on the sidelines for a rebound in risky assets on fears the U.S.-China trade war could curb profits and stall global growth.
“What they say is that they’re willing to step into the market if there’s a major correction,” he told Bloomberg TV.
