This presentation provides an updated overview of the state of global financial markets with a focus on the developments following the COVID-19 crisis and an assessment of market dynamics and downside risks

1. GLOBAL FINANCIAL MARKETS
Market valuations are elevated, yet
vulnerabilities remain
Committee on Financial Markets, 10 February 2021
Directorate for Financial and Enterprise Affairs

2. Committee on Financial Markets
• The Committee on Financial Markets’ overarching objective is to promote efficient,
open, stable and sound financial systems, based on high levels of transparency,
confidence, and integrity, so as to contribute to sustainable and inclusive growth.
• The Committee’s core method to support this objective is through in-depth and
proactive surveillance of financial developments and analysis of their impact on
economic growth and stability.
• This presentation reflects the Committee’s current surveillance of global financial
markets and risk transmission mechanisms related to the economic and financial
consequences of Covid-19.
2

3. Monetary and fiscal stimulus have supported elevated asset prices,
amid deteriorating economic fundamentals and growing risk
3
• Accommodative policies in advance and emerging market economies have supported elevated
valuations across asset classes, which are disconnected from underlying vulnerabilities and growing
risks, raising concerns about resilience.
Source: Refinitiv, OECD calculations.
Decline in policy rates in 2020 in selected major
markets, which remain negative in Japan and the
Euro Area
-0.5
0
0.5
1
1.5
2
United States United Kingdom Japan Euro Area
%
Advanced economies
0
1
2
3
4
5
6
7
Brazil Russia India China South Africa
%
Emerging economies
December 2019 January 2021
Increase in government spending in 2020 in
selected major advanced end emerging economies
20
25
30
35
40
45
50
55
60
United States United Kingdom Japan Euro Area Brazil Russia India China South Africa
% of GDP
December 2019 January 2021
Source: Refinitiv, OECD calculations.

4. Accommodative policies have reduced funding costs while long
term yields are rising with inflation expectations
4
• Moderately increasing US and British 3-year
sovereign bond yields, while flattening in
Europe and Japan, would limit the debt service
burden and near-term refinancing risk.
• 10-year sovereign bond yields are rising along
with inflation expectations in a context of
additional expected fiscal stimulus in the
United States and continued accommodative
monetary policy.
Source: Refinitiv, OECD calculations.
Source: Refinitiv, OECD calculations.
Moderately rising 3-year sovereign bond yields Rise in 10-year sovereign bond yields in major
advanced markets
0
0.5
1
1.5
2
-1
-0.5
0
0.5
1
1.5
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21
%
%
United States United Kingdom Euro Area Japan 5Y breakeven inflation rate (RHS)
-1.5
-1
-0.5
0
0.5
1
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
%
United States United Kingdom Euro Area Japan

5. Uneven equity price recovery and shift in structural trends could
drive expected earnings gaps across sectors
• Recovery in equity prices despite new COVID-19
variants, while delays in vaccine roll-out and
renewed lockdowns in some parts of the world
are likely to deteriorate further economic
fundamentals and weaken recovery.
5
• Advances in widespread vaccine deployment,
rising focus on healthcare needs, and growing
dominance of e-commerce have boosted
earnings expectations for technology,
healthcare and selected cyclical sectors;
further widening gaps with affected sectors.
Performance of major equity benchmarks
remains strong
Dispersed change in 12-month forward and
2019 EPS across economic sectors
Source: Refinitiv, OECD calculations.
Note: : 12-month forward earnings-per-share are derived from global sectoral
equity benchmarks. Data are as of March 3rd 2021.
Source: Refinitiv, OECD calculations.
50
60
70
80
90
100
110
120
130
140
150
Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21
Price index (100=Jan-2020)
S&P 500 STOXX 600 NIKKEI 225 MSCI EM Asia MSCI EM ex Asia
-40
-30
-20
-10
0
10
20
30
Change in 12-month
forward EPS and
2019 EPS (%)

6. Rising corporate bond yields may exacerbate a correction in equity
prices
6
• Corporate bond yields and long-term sovereign
bond yields have risen amid intensifying
inflation concerns.
• The divergence between corporate bond yields
and equity yields is tightening due to rising
corporate yields, triggering a correction in
equity prices.
Note: 1/CAPE is a market measure of ROE that is calculated as the ratio of earnings
to cyclically adjusted equity prices.
Source: Refinitiv, OECD calculations.
Note: Corporate bond yields are derived from ICE BofAML bond indices.
Source: Refinitiv, OECD calculations.
Recent rise in speculative-grade corporate yields Rising earnings yield (1/CAPE) compared to
bond yield
-6
-4
-2
0
2
4
6
8
10
Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15 Dec-18
%
United States Euro Area Japan United Kingdom
4.4
4.5
4.6
4.7
4.8
4.9
5
2.9
3.1
3.3
3.5
3.7
3.9
1-Jan-21 16-Jan-21 31-Jan-21 15-Feb-21
%
%
Europe Emerging markets United States (RHS)

7. Corporate credit market conditions for low quality issuers are
easing, despite rising investor concerns about downside risks
7
• The put-call ratio has reached elevated levels,
suggesting investors are hedging against
downside risks.
Note: The CBOE Index Put/Call Ratio focuses on options traded on the major indices.
A high put/call ratio can indicate fear in the markets, while a low ratio indicates
confidence.
Source: Refinitiv, OECD calculations.
Note: Option-adjusted spreads are derived from ICE BofAML bond indices.
Source: Refinitiv, OECD calculations.
Decline in speculative-grade corporate spreads
to pre-pandemic levels
Elevated put-call ratio levels
• Accommodative policies have contributed to
a decline of speculative-grade
corporate spreads; CCC spread stands below
pre-pandemic levels driven by investors’ hunt
for yield, which could reduce future
refinancing risk of lower rated issuers.
0
200
400
600
800
1000
1200
1400
1600
1800
2000
100
400
700
1000
1300
Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21
Basis points
Basis points
US BB US B Euro High-Yield EMEs corporate High-Yield US CCC (RHS)
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21
Ratio 50-days moving average put/call ratio Current

8. Record levels of capital raised in 2020, yet investing in high-
productivity activities will be important for sustainable growth
8
• Corporate bond and IPO issuance reached
record levels in 2020, but is expected to fall in
2021 as companies focus on earnings and debt
reduction.
• Firms that have raised capital have increased
their cash holdings, experienced a more
moderate reduction in investment and
improved cost efficiency, in priority of dividend
payouts.
Source: Refinitiv, Dealogic, Pwc, OECD calculations
Note: Calculations have been performed using a sample of 379 US non-financial firms for
which quarterly data of all indicators considered were available in Refinitiv. Firms that
have a positive change in their total balance-sheet in Q3 2020 compared to end-2019 are
expected to have raised capital. Data shown in this chart are simple averages of selected
ratios calculated for the two group of firms.
Source: Refinitiv, OECD calculations.
Change in cash, capital, operational
expenditures and dividends paid, by nominal
total assets (end 2019 vs Q3 2020)
-10
-8
-6
-4
-2
0
2
4
6
8
Change in Cash (%TA) Change in Trailling 12-month Capex
(%TA)
Change in SG&A expenditures
(%TA)
Percent change in Dividend per
share
Percentage points or %
Changein cash and capital expenditures,by nominal totalassets (end 2019 vs Q3 2020)
Increase in nominal assets Decrease in nominal assets
-29
Record levels of IPO and corporate bond
issuance in 2020
0
500
1000
1500
2000
2500
0
500
1000
1500
2000
2500
3000
3500
2016 2017 2018 2019 2020
USD, bn
USD, bn
USD investment grade rated corporate bonds EUR investment grade rated corporate bonds
USD high-yield rated corporate bonds EUR high-yield rated corporate bonds
USD Global IPO Issuance

9. Rising corporate losses could undermine financial resilience and
economic recovery
9
• Rising lower-rated corporate default rates in
2020, with further defaults expected in 2021.
• Deterioration in earnings of Chinese
corporates and the recent wave of corporate
bond defaults could erode Chinese banks’ asset
quality and increase corporate funding costs.
Notes: Date are expressed in percent of total number of industrial enterprises.
Source: Refinitiv, OECD calculations.
Note: In 2020, trailing-12-month default rates shown are calculated over the period
October 31st, 2019 - October 31st, 2020. 2021 default rates are forecasts of the
speculative-grade corporate default rate by June 2021 under baseline scenario.
Source: S&P Global Ratings.
Rising share of Chinese loss-making
industrial enterprises
Corporate speculative-grade default rate is
expected to rise
12
14
16
18
20
22
24
26
Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 Nov-15 Jun-16 Jan-17 Aug-17 Mar-18 Oct-18 May-19 Dec-19 Jul-20
% of industrial enterprises
(one-year moving average)
9
8
0
2
4
6
8
10
12
14
16
18
20
%
United States Europe Emerging markets

10. Rising bank equity valuations boosted by additional US fiscal
stimulus, despite moderate growth in expected earnings
10
• Substantial improvements in US bank equity
valuations compared to other regions, driven
by additional fiscal stimulus that is expected to
improve economic conditions.
• Expected earnings do not yet reflect the
forward impact of stimulus measures, raising
future concerns for bank valuations.
Source: Refinitiv, OECD calculations.
Note: Price-to-book value ratios are calculated using Refinitiv bank equity regional
benchmarks.
Source: Refinitiv, OECD calculations.
Substantial increase in US banks’ price-to-book
value ratio compared to other major banking
systems
Moderate growth in bank earnings-per-share
in major banking systems
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
Trailling 12-month forward
EPS(%)
Trailling 12-month forward
EPS(%)
Advanced markets China United States (RHS)
0.4
0.6
0.8
1
1.2
1.4
Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21
Ratio
United States Europe Asia Pacific China

11. While market conditions have improved prospects in many banking
systems, rising NPLs could reduce banks’ capacity to intermediate
11
• Monetary policy actions and fiscal stimulus
have reduced financial distress concerns in
major banking systems.
• Rise in bank non-performing loans in 2020
likely to erode banks’ willingness and capacity
to lend.
Note: This figure shows average non-performing loan ratios across banks within a
given region. The sample includes 798 commercial banks.
Source: Refinitiv, OECD calculations.
Note: Regional weighted average (by total assets) of 5-year CDS spread is calculated
including GSIBs listed by the FSB and systemically important banks listed by the
EBA.
Source: Refinitiv, OECD calculations.
30
40
50
60
70
80
90
100
110
120
130
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21
Basis points
Euro Area United Kingdom United States Japan China
Decline in 5-year bank credit default swaps to
pre-crisis levels
Increase in non-performing loans in 2020,
by region
0
1
2
3
4
5
6
7
8
9
North America Europe Asia Pacific EMEs
% of total loans
2019 2020

12. Gradual recovery in real estate fund valuations and renewed inflows
following additional Federal Reserve CMBS purchases
• Gradual increase in real estate fund valuations
boosted by extensive monetary and fiscal
support; despite delays in vaccine roll-out and
renewed lockdowns, expectations are that the
vaccine will create a bridge to recovery.
12
• Additional Federal Reserve CMBS purchases
to sustain smooth market functioning have
strengthened investors’ confidence to invest
in real estate ETFs and boost portfolio
return.
Source: Investment Company Institute, Refinitiv, OECD calculations.
Source: Refinitiv, OECD calculations.
Recovering US real estate ETF performance Growing net inflows to US real estate ETFs in
Q4 2020
-4
-3
-2
-1
0
1
2
3
4
5
6
2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1
USD, bn
30
40
50
60
70
80
90
100
110
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
Price index (100=Jan-2020)
Vanguard real estate ETF iShares mortgage real estate ETF

13. Strained conditions in real estate finance markets following the
COVID-19 crisis raises concerns for real estate trusts and funds
• Tightening conditions on MBS markets
following rising defaults on home mortgages
and to a greater extent on commercial loans
(mainly retail and hotel sectors).
13
• Rising downside risks for real estate trusts
and funds due to significant liquidity and
maturity mismatches combined with
deteriorating credit quality of mortgage and
MBS investments.
Source: SIFMA, AFME, OECD calculations. Source: Trepp, Mortgage Bankers Association of America, Refinitiv, OECD
calculations.
Decline in MBS issuance in the US and Europe
in 2020
Rising US CMBS and residential mortgage
delinquency rates
0
50
100
150
200
250
300
2008 2010 2012 2014 2016 2018 2020
USD, bn
US non-Agencyissuance
0
50
100
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
USD, bn
European issuance (including theUnited Kingdom)
RMBS CMBS
0
5
10
15
20
25
30
Industrial Lodging Multifamily Office Retail
%
CMBS
March 2020 Maximum in 2020 December 2020
0
1
2
3
4
5
6
7
8
9
Q1 2005 Q4 2008 Q3 2012 Q2 2016 Q1 2020
%
Residentialmortgages
Delinquent (Total) Seriously delinquent
Foreclosure started

14. Elevated valuations for some major cryptoassets raises concerns of
market corrections and spillovers
14
• Already elevated prices of gold and bitcoin
further boosted by investors’ demand for
hedging against inflation risk.
• Despite the SEC enforcement complaint against
Ripple, and the New York court investigation
into Tether, the market capitalisation of
cryptoassets continues to grow.
Note: Other cryptocurrencies include 3984 available in the coinmarketcap database.
Source: Coinmarketcap, OECD calculations.
Note: The 5-year breakeven inflation rate is expressed in percent and gold price index as a
ratio.
Source: Refinitiv, OECD calculations.
Increase in cryptoassets market capitalisation
in late 2020
Elevated gold and bitcoin prices combined with
continuously rising expected US inflation
0.8
1
1.2
1.4
1.6
1.8
2
0
1
2
3
4
5
6
7
8
9
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21
%
Price index (100=Jan-2020)
Bitcoin price Gold price (RHS) 5Y breakeven inflation rate (RHS)
0
200
400
600
800
1000
1200
1400
1600
1800
Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20 Aug-20 Dec-20
USD, bn
Bitcoin Ethereum Other cryptocurrencies

15. Gradual oil market recovery contrasts with the recent decline in
renewable energy
15
• Increase in oil prices reflects a boost in
demand due to a cold-snap in Europe and Asia,
and OPEC+ supply cuts.
• US shale companies keep production flat and
use price gain to deleverage or boost investor
returns.
• Decline in renewable energy stocks while the
fossil fuel producer index is recovering driven
by rising oil prices and gains by some oil
companies’ strategies for a low carbon
transition.
Note: Equity benchmarks shown are MSCI World renewable versus energy indices.
Source: Refinitiv, OECD calculations.
Source: Refinitiv, OECD calculations.
Recovery in Brent and WTI oil prices
Elevated renewable energy stocks compared to
fossil fuel producers
0
15
30
45
60
75
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21
US Dollar per barrel
Crude oil brent WTI crude oil
30
50
70
90
110
130
150
170
190
210
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
Stock price index (100=Jan-
2020)
MSCI World renewable energy index MSCI World oill, gas and fuel index

16. Rising downside risks in EMEs due to deteriorating fiscal deficits
and corporate earnings
16
• Sharp growth in sovereign deficits due to the
implementation of extensive fiscal support
measures that may have major implications for
sovereign debt trajectories and sustainability.
• Combined deterioration in earnings and rising
corporate debt accumulation may erode
corporate debt sustainability of highly
leveraged issuers that is worsening prospects
for private investment, productivity and
economic recovery.
Note: This figure shows average return-on-equity of non-financial companies listed
in the Refinitiv emerging market equity benchmark.
Source: Refinitiv, OECD calculations.
Source: Refinitiv, OECD calculations.
Rising sovereign deficits in 2020 for selected
major emerging economies
Substantial decline in corporate profits in
2020 to all time lows
-20
-15
-10
-5
0
5
Brazil South Africa Russia China India
% of GDP
2019 2020
8
10
12
14
16
18
20
Q1 2004 Q4 2005 Q3 2007 Q2 2009 Q1 2011 Q4 2012 Q3 2014 Q2 2016 Q1 2018 Q4 2019
%

17. Strong capital inflows to EMEs occurred against a backdrop of
continued weakening in the US dollar and rising global risk appetite
17
• 70% of global sovereign and corporate bonds
yielded less than 1% return in 2020 that has
encouraged exposures to lower-rated sovereigns
or firms as investors seek higher yields.
• Record high inflows allocated to Chinese debt
while equity outflows have been driven by non-
financial corporates stock sell-offs, reflecting
investors’ concerns about the implications of
COVID-19 for corporates in emerging market
economies.
Source: The Institute of International Finance (Capital flows to Emerging Markets
report).
Source: Bloomberg Finance LP, Deutsche Bank Research.
Rising share of low-yielding bonds
outstanding in global bond markets
Despite strong inflows to emerging markets,
EME equity markets lagged in 2020
-50
0
50
100
150
200
250
300
350
400
2019 2020
USD, bn
EM debt EM equity China equity China debt

18. Policy actions have helped improve conditions in financial
markets, yet challenges remain for financial resilience
18
• Market confidence has improved due to continued stimulus, while
delays in vaccine roll-out and renewed lockdowns have weakened
economic fundamentals and recovery prospects.
• Investor risk appetite has supported elevated market valuations,
while credit risk premia remain compressed.
• While record amounts of capital have been raised by corporates in
public markets, investing into the recovery in high-productivity
activities will be important for sustainable growth.
• Rising bank NPLs in many OECD countries, therefore NPL
resolution schemes would help strengthen bank resilience, credit
intermediation capacities and economic recovery.
• Investor’s hunt for yield is fostering strong inflows to debt markets
despite rising corporate and sovereign solvency risks.
Effective crisis
response
Elevated market
valuations
EME risks are
rising
Allocation of
capital raised in
public markets
Deteriorating
bank asset
quality

19. .
Supporting financial markets during the pandemic
Financial markets policy guidance on the OECD COVID-19 Hub:
 Financial markets – financial fragilities and policy recommendations to address financing
needs
 Public debt management – increased borrowing needs and market volatility
 Financial consumer protection – easing the burden on households
 Supporting financial resilience of citizens – financial awareness and literacy
Link to Recent OECD publications:
 OECD Economic Outlook, Volume 2020 Issue 2
 Sovereign borrowing outlook for OECD countries 2020, SPECIAL COVID-19 EDITION
 Regulatory Approaches to the Tokenisation of Assets
 ESG Investing: Practices, Progress and Challenges
 ESG Investing: Environmental Pillar Scoring and Reporting
 COVID-19 Government Financing Support Programmes for Businesses

20. FOR MORE INFORMATION PLEASE VISIT:
WWW.OECD.ORG/FINANCE/FINANCIAL-MARKETS/
Follow us: @OECD_BIZFIN