FRANKFURT (Reuters) – The European Central Bank warned on Wednesday of a stock market “bubble” linked to artificial intelligence, which could suddenly burst if investors’ optimistic expectations are not met.
The warning is part of the ECB’s twice-yearly financial stability review, a long list of risks ranging from wars and tariffs to cracks in the banking system’s plumbing.
The central bank of the 20 countries sharing the euro zone noted that the stock market, particularly in the United States, had become increasingly dependent on a handful of companies seen as beneficiaries of the AI boom.
“This concentration between a few large companies raises concerns about the possibility of an AI-related asset price bubble,” the ECB said. “Moreover, against a backdrop of deeply integrated global stock markets, this highlights the risk of negative global spillovers, should earnings expectations for these companies be disappointed.”
The ECB noted that investors were demanding a low premium to hold stocks and bonds, while funds had reduced their cash reserves.
“Given the relatively low liquid assets and large liquidity disparities in some types of open-end investment funds, liquidity shortages could lead to forced asset sales that could amplify downward adjustments in asset prices “, declared the ECB.
Among other risks, the ECB signaled that the eurozone was vulnerable to greater trade fragmentation – a major source of concern for policymakers and investors since Donald Trump’s early victory in the US presidential election. of the month.
The president-elect had made tariffs a key part of his pitch to voters during the campaign, and several ECB officials said the measures, if implemented, would hurt growth in the euro zone.
The ECB also noted that eurozone governments – particularly Italy and France – would borrow at much higher interest rates over the coming decade, reinforcing the need for prudent fiscal policies.
(Reporting by Francesco Canepa; Editing by Alex Richardson)