An often-overlooked reason stock markets are prone to bouts of irrational exuberance, as is the case now, is that there is too much money chasing too few investment opportunities around the world. Could we be on the cusp of breaking out of this vicious cycle of boom and bust?
There are some grounds for optimism on this score. They originate from an unexpected quarter – not from dangerously overpriced equity markets but from more staid bond markets beyond the United States, specifically in Europe and Asia.
European monetary authorities are pushing for the creation of genuine “Eurobonds”, a pan-European Union bond market where different countries raise joint funds in their common currency. These would be distinct from the existing Eurobond market, where countries and entities separately raise funds.
This in itself would be a big step towards expanding the global investment universe and could provide a model for Asia, where the existing market for Asian bonds allows countries and entities to issue debt securities in multiple different currencies. These moves together could hugely expand global capital markets.
To understand why this is necessary, we need to look at the current relative size of bond markets. The supply of savings in these markets is becoming increasingly disproportionate to the size of investment opportunities. First, we should note that the size of global financial assets under management in 2025 reached close to US$150 trillion, according to Boston Consulting Group. For comparison, global gross domestic product was just less than US$111 trillion in 2024.
Where can this huge amount of savings be most safely and gainfully invested in a way that serves the public interest? Much of it is directed into equity markets, and a good deal of that money goes into US-listed stocks, which are in the middle of what is widely seen as an artificial intelligence-driven tech bubble pushing stock valuations towards stratospheric highs.