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By Huw Jones
LONDON (Reuters) – Stock markets face possible corrections after rebounding beyond their coronavirus-affected economic bases, the European Union’s securities control body said Wednesday.
The European Securities and Markets Authority (ESMA) said there had been a “potential decoupling” of money market profits and an economy affected by the COVID-19 pandemic, which raised doubts about the sustainability of the existing market rebound.
ESMA said its most recent report on “trends, dangers and vulnerabilities” continues to see very significant dangers in markets.
Stock markets have risen 40% in euro dominance since a low in mid-March, when economies stagnated to combat the pandemic and economies went into recession.The IMF expects GDP in the euro dominance to fall by more than 10% this year, with a slight recovery in 2021.
There is a “prolonged threat to institutional investors and additional retail market corrections, in all likelihood significant,” the EU supervisory body said.
“They have an effect on EU companies and the quality of their credits, as well as on credit institutions, it is of particular concern.”
The ESMA report also tested whether new EU regulations requiring agents to detail the prices of studies on inventory variety and transaction execution, known as disaggregation, will be transparent to customers.
Critics said this would lead to a lack of studies on smaller and less publicized stocks, however ESMA said in its report Wednesday that its studies “locate physical evidence of the destructive effects of the separation rules.”
(Report via Huw Jones, edited through Jacqueline Wong)