One of the tenets of financial history is that two similar crises do not happen, therefore the search for potential triggers in the global economy and markets.
Vulnerability in regard to early prediction of the crisis 10 years ago, and two decades after the turmoil on the markets of Asia, the monetary authorities, traders and economists are looking for the answer to the question when and where will be the next collapse.
The reality today is striking events, which are an eloquent testimony to another global challenge that more and more manifest as the crisis in the world markets.
Yesterday, the world witnessed how the stock exchanges of the US and Asia closed strong in recent months, the decline after the publication of the IMF report on the risks of slowing global economic growth. This is stated in the message of the air force.
Asian markets tumbled after the downturn in the markets in the United States. It is noted that on world markets are the sale of the shares. The largest Japanese Nikkei 11 Oct 2018 fell almost 4%, Hong Kong Hang Seng index declined 3.5%. The media called it the strongest decline in Asia for a year and a half.
“The collapse of quotations has responded to the President of the United States Donald trump is he said that the local banking regulator “crazy “. Falling of quotations on the stock exchange in Moscow”, — says the publication.
Error in the policy of the Federal reserve system, for example, raising rates too fast or too slow, could hit the U.S. economy and undermine the functioning of world markets.
To your attention some of the potential hot spots, including those that may not have thought of.
The Problem Of China.
The rapid credit expansion led to rapid economic growth of China. Lately, Beijing has taken steps to slow down the growth of corporate debt, but total debt outside the banking sector continued to grow in 2017 and remains at too high a level, as noted in the IMF report.
Tense trade relations with the United States can force China to slow down the debt reduction that will lead to even greater financial risks.
The problem in emerging markets.
The increase in interest rates by the Federal reserve in conjunction with the growth of the dollar has caused shock fluctuations in the markets of developing countries. Problems in emerging markets, led to complications payments of debts of companies that had debt in US dollars. Argentina to stop a currency crisis, has signed an agreement with IMF lending facilities of $ 57 billion, Which is the largest loan in the Fund’s history, to stop the currency crisis in the country. The Turkish Lira collapsed amid concerns of investors that the administration of Recep Tayyip Erdogan is able to contain inflation.
“In emerging markets, which have engaged in excessive borrowings in us dollars, and major importers of oil are probably the most vulnerable,” says HAK Bin Chua, a senior economist at Maybank Kim Eng in Hong Kong.
The rise in oil prices makes the talk about a return to $ 100 a barrel for the first time in 2014, hitting countries that are heavily dependent on imports, including India, China, Taiwan, Chile, Turkey, Egypt and Ukraine. While higher prices is a positive factor for exporters, the increase in oil prices will further weigh on emerging markets that are vulnerable to rising interest rates in the United States.
The problem of corporate debt.
According to the IMF, the growing debt of the private sector is a driving force for sustainable growth in global debt since 1950. During the recent crisis, the debt of the private sector, the United States was a time bomb. American consumers have since tightened the belt, but the American company took over.
The Eurozone, Italy.
The risk of revision member countries stay in the Eurozone, and the subsequent exit from the Eurozone received a new name: Quitaly. Fears that the Prime Minister, Giuseppe Conte prove the debt to an unacceptable level, raised the yield of Italian bonds to levels not seen since the Eurozone debt crisis.
The Problem Of “Brexit”.
Markets are preparing for the risk that the UK will not enter into an agreement on “divorce” with the EU that would lead to a chaotic exit of the country from the regional Association at the end of March. The consequences for the financial sector can be negative: British banks will lose their “European passport” that can make them, for example, to increase the capital. The IMF warned Central banks that may need large-scale refinancing of banks.
So, what is the trajectory for the time span from birth to the onset of the crisis?
Ten years after the events, when the collapse of Lehman Brothers caused a market collapse and a series of emergency measures, JPMorgan strategists have created a model for assessing the timing and depth following the financial crisis. They believe that investors should focus on the year 2020.
The results of the analysis are not devoid of a certain optimism, as a new crisis, according to experts will probably be not as painful as previous ones. The bad news is that the liquidity in the financial markets compared to 2008 dropped significantly — in other words, the lack of buyers may accelerate the collapse of the markets in the event of turbulence.
JPMorgan expects the model potential scenarios, taking into account the duration of economic growth, the potential duration of the next recession, the debt burden, the valuation of assets and the extent of deregulation and financial innovation before the crisis. On the basis of analytical review of JPMorgan on the assumption of a recession mid-length model gave the following assessment of possible dynamics of the different asset classes from peak to bottom during the next crisis:
- The decline in US stocks is about 20%.
- Premium growth in the yields of corporate bonds of about 1.15 percentage points.
- The fall of energy prices by 35 percent, and non — ferrous metals-29%.
- The widening of spreads on government bonds EM by 2.79 percentage points.
- The decrease in the share of developing countries of 48 percent, and currency — by 14.4%.
“These forecasts for the various assets appear moderate in comparison with the effects of the global financial crisis, and, perhaps, is not of concern in comparison with the average of the recessions / crises” of the past, wrote strategists at JPMorgan’s John Normand and Federico Manicardi, noting that during the recession and the global crisis, the S & P 500 fell from a peak of 54 percent.
Note also that earlier, analysts Bank of America Corp warned about the Outlook for the global stock market repeat of the global economic crisis of 1997-1998. So, on the basis of analysis of trends analysts at Bank of America Corp assuming a repeat of events in 1998, when the Asian region was the world economic crisis and Russia default. All of the above factors the analysts of the Bank compared to the situation of the 1990-ies. This time of the escalation policy in the beginning of the decade led to the strengthening of the dollar in the next three years it rose by 25%. Markets were also on the decline.
It should be emphasized that in the global circular economy recession happen cyclically every 10 years. That’s how much time has passed since the financial crisis of 2008.
Recall, the IMF in its next report announced a reduction in forecast global GDP growth in 2018 and 2019. If in July, the Fund expected growth of 3.9% per year, then in October have adjusted this figure to 3.7%. About the deterioration of the forecast of developing countries, in 2018, the GDP growth will be 4.7% (previous forecast of 4.9%), and in 2019 — also a 4.7% instead of 5.1%.