Risks of market and systemic stress in EU financial markets remained high despite resilient performance in the second half of 2025, the European Securities and Markets Authority (ESMA) said in its first risk monitoring report of 2026.
The assessment was completed before fresh shocks linked to the war in the Middle East began in late February, but early market reactions to the conflict reflected vulnerabilities flagged in the report, ESMA announced on Wednesday.
The likelihood of sudden and significant price swings remained elevated, driven by increasing geopolitical tensions, stretched equity valuations and an uncertain economic outlook in the EU.
Rising correlations — when different assets move more closely together — increased the risk of losses spreading across markets, while cyber and hybrid threats continued to grow in scale and sophistication, increasing the risk of operational disruptions.
ESMA chair Verena Ross said the escalation of conflict in the Middle East had led to sharp rises in energy and commodity prices and higher volatility.
Equities, bonds, crypto and funds
Record-high global equity valuations in the second half of 2025 and early 2026 increased the risk of disorderly market corrections, according to the report. Spreads on European sovereign bonds versus Germany narrowed, while liquidity weakened slightly amid macroeconomic uncertainty, ESMA informed.
An October “flash crash” — a sudden, sharp market drop — triggered an extended sell-off in crypto markets, while stablecoins continued to grow but at a slower pace.
Exchange-traded fund (ETF) inflows remained high as investors continued shifting from active to passive strategies.
Leveraged products such as “turbos” often delivered negative returns for retail investors, while social media’s growing influence on younger investors increased bubble risks.
Elsewhere, equity issuance remained weak as initial public offerings (IPOs) continued to decline, while ESMA found no clear evidence of rising delistings in Europe despite a persistent downward trend in IPOs, the report said.
