ECB: Eurozone households have 440 billion in exposure to US tech firms
A correction in the AI sector would also affect the eurozone
(Il Sole 24 Ore Radiocor) - The boom in artificial intelligence has pushed US stock market valuations close to all-time highs, increasing the risk of a correction that could have “serious consequences” for the Eurozone as well. This is the view put forward by five ECB economists in an article published on the central bank’s blog. According to the authors, the history of previous technological revolutions, from the railways to the internet, leads to a “worrying conclusion”: a correction in current share valuations is likely, regardless of whether prices reflect rational enthusiasm or a speculative bubble similar to the dot-com bubble. The eurozone is exposed primarily through holdings in the seven largest US technology groups, the so-called ‘Magnificent Seven’. Households in the eurozone hold around €440 billion in exposure to US technology shares, mainly through mutual funds and ETFs, often without being fully aware of the risk of concentration. Insurance companies and pension funds also have significant exposure. A fall in technology shares could also force funds to sell assets to meet redemptions, exacerbating the downturn and fuelling further redemption requests. For this reason, economists note, any correction would represent a financial stability issue and not merely a loss for shareholders. Compared with the dot-com crisis, the authorities now have less scope to mitigate the consequences through interest rate cuts or fiscal measures. The risk of a bubble originating directly within the eurozone appears more limited. Share valuations are lower than those in the US, the technology sector is showing increased productivity and margins, and the adoption of AI by businesses is proceeding at a steady pace. Furthermore, European stock markets remain dominated by ‘old economy’ companies.However, the strong historical correlation between US and European stock markets means the Eurozone cannot be considered immune. A correction in the US AI boom could spill over into European confidence, financing conditions and employment: “A downturn in AI in the US would not remain a US-only problem.”
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