Heinz Zimmermann, Professor of Finance, University of Basel:

Unrealistic Profit Expectations Priced in. (Image: Courtesy)

The continued negative interest rate trend in most markets often leads many investors to compensate for returns through dividend yields, which drives up the valuation of even conservative assets. Coupled with the bubble in the technology sector, this has led to unsustainable price levels, creating a dangerous illusion of wealth.

The disparity between modest economic growth and the profit growth required by many companies to justify their high valuations is already apparent. For instance, Microsoft would need sustained annual profit growth of around 25 percent. At the very least, investors should remain mindful of the bubble risk in this context.

With the concerning interest rate developments, risks are shifting to seemingly stable sectors, which could lead to unpleasant surprises once the interest rate situation normalizes.