The International Monetary Fund yesterday warned of the growing risk of a large correction in the US equity market that might spill over to other markets and create the sort of financial turbulence that swept the world a year ago.
In its annual report on capital markets issues, the IMF said: "The remarkably high level of valuations in the US equity market, reached after a nearly unprecedented period of gains, poses a risk in global financial markets."
Though many investors believe the rise in US share prices is justified, the Washington-based institution warned that the factors that had supported the market were no longer in force. The decline in interest rates had reversed, corporate profits growth was likely to slow, and the flow of money into mutual funds had slowed.