Frothy Markets Spark Worries of Bubbles in European Assets

The almost uninterrupted rally in European stocks and corporate bonds over the past year has sent valuation metrics to frothy levels, setting the stage for potential pull-backs as Europe struggles with its vaccine rollout which could imperil the region’s economic recovery.

With Europe’s equity benchmark trading at a near record-high valuation level, the word “bubble” is creeping into analysts’ notes, following sharp gains fueled by unprecedented stimulus measures from central banks and governments fighting the economic impact from the pandemic.

While returns-hungry investors continue to pile into risky assets, a number of strategists warn of a growing disconnect between prices and the economic reality in various corners of the market, from Europe’s renewable energy shares to investment-grade corporate bonds.