The Bank of Spain has warned of the danger for financial stability that a stock market correction in the share prices of large technology companies would bring, due to their size and high weight in stock market indices, especially in the United States. United.
The Bank of Spain’s opinion is included in the autumn edition of its Financial Stability Report.
“The weight of technology leaders in terms of capitalization in general US stock indices is very high, which increases the likelihood that the idiosyncratic risks of each company will have a systemic impact,” notes the Bank of Spain in its report . .
More specifically, the supervisor clarified that this correction could occur if adverse macroeconomic events materialize or in the event of a significant downward revision of the profit forecasts of certain technology companies.
Furthermore, this situation could be aggravated because certain financial intermediaries, such as international investment funds, could be forced to carry out accelerated sales in times of liquidity stress “by maintaining illiquid positions or having leverage pupil “.
In this sense, the organization indicates in its report that the price/earnings ratio (PER) is higher than its historical average in both the S&P 500 and the Nasdaq 100.
Some parallels with the “Internet bubble”
“This situation for technology companies has some similarities with the global episode recorded in the early 2000s, known as the ‘dotcom bubble.’ During this period, there was also a sharp rise in the stock prices of technology companies, significantly higher than that of technology companies. that of the rest of the economic sectors”, analyzes the BoE report.
However, the organization claims that there are also “significant differences”, such as the fact that the PER is not so high on this occasion and that technology companies today are “consolidated”.
To illustrate the sensitivity to “shocks” in financial markets, the Bank of Spain recalled the temporary episode of tension at the beginning of August. “The first corrections in asset prices were amplified by technical factors, such as the closure of carry-trade operations on the yen,” he detailed.
Cyber incidents
Concerning the risks for credit institutions, the supervisor’s report reflects the growing concern of banks regarding cyber risks. This concern is framed by the growing penetration of digital technology in the sector and the potential impact of serious incidents.
In this sense, the organization recalled the interruption of technological services that occurred worldwide due to the faulty update of a CrowdStrike security component. This “was a wake-up call about the risks of incident propagation in highly interconnected digital service environments,” the Bank of Spain underlined.
Likewise, the Bank of Spain also recalled the malicious access to a Banco Santander database, despite the fact that the stolen information did not contain transaction data, which limited the impact of the incident.
