Financial stability fears rise as ‘everything’ rallies

2021 ◽  
Keyword(s):  
Hedge Funds ◽  
Financial Stability ◽  
Global Markets ◽  
Price Expectations ◽  
Content Type ◽  
Profound Impact ◽  
Financial Conditions ◽  
Retail Investors ◽  
Asset Classes ◽  
Dot Com

Significance There are fears of a bubble reminiscent of the 1990s dot-com mania. The froth is most apparent in US stock markets, where retail traders are wielding increasing influence. Investors' exuberant behaviour across asset classes suggests many participants are losing touch with reality. Impacts If GameStop portends the start of a battle between hedge funds and retail investors, it could have a profound impact on global markets. The dollar index has plunged to its lowest since April 2018 and is set to stay relatively weak, helping to keep financial conditions loose. A market gauge of US price expectations is at its highest since 2013, with the 5-year breakeven rate surging to 2.2% from 0.1% a year ago. ‘Vaccine nationalism’, particularly in Europe, is further politicising the response to the pandemic and endangering the global recovery.

scholarly journals Construction of China’s financial conditions index in the post-crisis era

2019 ◽  
Vol 2 (2) ◽  
pp. 258-276
Author(s):  
Nan Li ◽  
Liu Yuanchun
Keyword(s):  
Financial Stability ◽  
Design Methodology ◽  
Predictive Power ◽  
Time Varying ◽  
Content Type ◽  
Vector Autoregressive ◽  
Financial Variables ◽  
Financial Conditions ◽  
Time Varying Parameter ◽  
Better Than

Purpose The purpose of this paper is to summarize different methods of constructing the financial conditions index (FCI) and analyze current studies on constructing FCI for China. Due to shifts of China’s financial mechanisms in the post-crisis era, conventional ways of FCI construction have their limitations. Design/methodology/approach The paper suggests improvements in two aspects, i.e. using time-varying weights and introducing non-financial variables. In the empirical study, the author first develops an FCI with fixed weights for comparison, constructs a post-crisis FCI based on time-varying parameter vector autoregressive model and finally examines the FCI with time-varying weights concerning its explanatory and predictive power for inflation. Findings Results suggest that the FCI with time-varying weights performs better than one with fixed weights and the former better reflects China’s financial conditions. Furthermore, introduction of credit availability improves the FCI. Originality/value FCI constructed in this paper goes ahead of inflation by about 11 months, and it has strong explanatory and predictive power for inflation. Constructing an appropriate FCI is important for improving the effectiveness and predictive power of the post-crisis monetary policy and foe achieving both economic and financial stability.

Evergrande turmoil to worry, not wreck, global markets

2021 ◽  
Keyword(s):  
Real Estate ◽  
Housing Market ◽  
Equity Market ◽  
Global Markets ◽  
Content Type ◽  
The Real ◽  
The Real Estate ◽  
Financial Conditions ◽  
Real Estate Sector ◽  
Global Demand

Significance Evergrande's troubles have increased concern about China's all-important housing market, as Beijing seems intent on reducing excessive leverage in the real-estate sector. Global markets are already unsettled by the threat to the global recovery posed by the Delta variant of COVID-19 and the possibility of inflation prompting faster-than-expected monetary tightening. Impacts Contagion beyond Chinese housing should be very limited: illustrating this, China’s equity market has remained resilient. Slower growth in China will reduce global demand for exports and add to the concerns about manufacturing and services activity slowing. Global financial conditions are likely to remain extremely accommodative, supporting stocks amid mounting concerns about lofty valuations.

EM corporate debt is key risk to global markets

2015 ◽  
Keyword(s):  
Financial Stability ◽  
Credit Rating ◽  
Economic Conditions ◽  
Global Markets ◽  
Corporate Debt ◽  
Bond Markets ◽  
Content Type ◽  
Default Rates ◽  
Debt Market ◽  
Rating Downgrades

Significance The IMF's warning, contained in its Global Financial Stability Report (GFSR), shows concerns for the vulnerabilities posed by the build-up of EM corporate debt, especially dollar-denominated debt, which is at risk from local currencies' depreciation, the commodity sell-off and the deterioration in economic conditions across much of the developing world. Impacts EM bond markets will be more resilient than foreign exchange and equity markets, which are suffering from large sell-offs. Although EM corporate debt market-default rates remain low compared to the 1990s, credit rating downgrades will outweigh upgrades. Emerging Asia will remain the most resilient EM corporate debt market thanks to the stronger credit fundamentals of its corporates.

scholarly journals On the relation between the crude oil market and pandemic Covid-19

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Imlak Shaikh
Keyword(s):  
Infectious Diseases ◽  
Crude Oil ◽  
Hedge Funds ◽  
Second Phase ◽  
Initial Growth ◽  
Computer Algorithms ◽  
Content Type ◽  
Oil Market ◽  
Asset Classes ◽  
High Level

PurposeThe crude oil market has experienced an unprecedented overreaction in the first half of the pandemic year 2020. This study aims to show the performance of the global crude oil market amid Covid-19 and spillover relations with other asset classes.Design/methodology/approachThe authors employ various pandemic outbreak indicators to show the overreaction of the crude oil market due to Covid-19 infection. The analysis also presents market connectedness and spillover relations between the crude oil market and other asset classes.FindingsOne of the essential findings the authors report is that the crude oil market remains more responsive to pandemic fake news. The shock of the global pandemic panic index and pandemic sentiment index appears to be more promising. It has also been noticed that the energy trader's sentiment (OVX and OIV) was measured at a too high level within the Covid-19 outbreak. Volatility spillover analysis shows that crude oil and other market are closely connected, and the total connectedness index directs on average 35% contribution from spillover. During the initial growth of the infection, other macroeconomic and political events remained to favor the market. The second phase amidst the pandemic outbreak harms the global crude oil market. The authors find that infectious diseases increase investor panic and anxiety.Practical implicationsThe crude oil investors' sentiment index OVX indicates fear and panic due to infectious diseases and lack of hedge funds to protect energy investments. The unparalleled overreaction of the investors gauged in OVX indicates market participants have paid an excessive put option (protection) premium over the contagious outbreak of the infectious disease.Originality/valueThe empirical model and result reported amid Covid-19 are novel in terms of employing a news-based index of the pandemic, which are based on the content analysis and text search using natural processing language with the aid of computer algorithms.

Widening imbalances to weigh on Colombia growth

2019 ◽  
Keyword(s):  
External Debt ◽  
Gdp Growth ◽  
Upward Trend ◽  
Short Term ◽  
Price Expectations ◽  
Content Type ◽  
Financial Conditions ◽  
Inflationary Pressure ◽  
World Economic ◽  
Economic Outlook

Subject Colombia's economy. Significance The Colombian economy is forecast to grow 3.5% in 2019 and 3.6% in 2020 according to the IMF's latest World Economic Outlook released this month. After three years of underperformance, the economy is gaining momentum. Nevertheless, domestic-led growth coupled with dwindling oil production will pose short-term challenges to external and public accounts. Impacts The Bank of Colombia will keep its benchmark interest rate steady amid modest inflationary pressure and declining price expectations. The oil sector’s contribution to GDP growth will fall due to shrinking production, weaker prices, insecurity and underinvestment. The upward trend of external debt intensifies Colombia’s vulnerability to tighter financial conditions.

Analysis of diversification benefits for cryptocurrency portfolios before and during the COVID-19 pandemic

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Florin Aliu ◽  
Ujkan Bajra ◽  
Naim Preniqi
Keyword(s):  
Design Methodology ◽  
Portfolio Risk ◽  
Content Type ◽  
Risk Return ◽  
Retail Investors ◽  
Portfolio Managers ◽  
Asset Classes ◽  
The Individual ◽  
Diversification Techniques ◽  
Daily Returns

Purpose This study aims to investigate the diversification benefits attached to the crypto portfolios when combined with stocks, Forex instruments and commodity assets. Design/methodology/approach Markowitz diversification techniques have been used to analyze the risk-return tradeoffs of the individual portfolios. Daily prices on cryptocurrencies and the selected asset classes, cover the period before and during the pandemic COVID-19. The portfolio risk of the portfolios was calculated by identical techniques and analyzed with equal criteria. Findings The results with 270 trails indicate that stocks on average reduce the portfolio risk of crypto portfolios by 36% followed by fiat currency with 30.9% and commodities by 20.8%. Average daily returns stand in line with the standard portfolio theories where riskier portfolios offer higher returns and the other way around. Originality/value The authors contribute to the current literature by investigating the portfolio risk attached to the crypto portfolios when stocks, commodities and Forex instruments were added separately. To this end, results inform not only retail investors but also portfolio managers on the asset classes that generate better optimization for crypto portfolios.

SPAC investment schemes’ sustainability is doubtful

2021 ◽  
Keyword(s):  
Initial Public Offering ◽  
Hedge Funds ◽  
Private Equity ◽  
Private Companies ◽  
Content Type ◽  
Public Company ◽  
Retail Investors ◽  
Public Offering

Significance Their promoters claim that they offer private companies a cheaper, faster and more certain path to becoming a public company than by taking the traditional route of an initial public offering (IPO). Impacts The regulatory leniency afforded SPACs by being governed by merger, not public offering rules, is a loophole that may be closed. SPACs are dubbed 'poor man's private equity', but their non-sponsor shareholders are mostly hedge funds, not retail investors. Most initial investors in SPACs exit before the merger, necessitating new equity to be raised, which undermines the premise of the model.

scholarly journals Financial stability and local economic development: the experience of Italian labour market areas

2021 ◽  
Author(s):  
Cristian Barra ◽  
Roberto Zotti
Keyword(s):  
Economic Development ◽  
Labour Market ◽  
Financial Distress ◽  
Financial Stability ◽  
Local Economic Development ◽  
Banking System ◽  
Spatial Effects ◽  
Financial Conditions ◽  
Market Areas ◽  
The Relationship

AbstractRegulators should ensure the smooth functioning of the system and promote regional development. Making the health of financial institutions is therefore a prerequisite for a sustainable economic development. This paper contributes to the literature on the relationship between the financial stability and growth within the area of one country. This implies that institutional, legal, and cultural factors are more adequately controlled for and financial markets are more accurately bounded. Using a rich sample of Italian banks over the 2001–2012 period, this paper addresses whether different measures of financial distress affect economic development of labour market areas in Italy. Results show that the financial stability has a positive effect on local economic development, robust to alternative variables capturing financial vulnerability. The presence of spatial effects is tested showing that better financial conditions of the banking system in neighbouring areas have a detrimental effect on an area’s growth.

scholarly journals The future of financial markets and regulation: what strategy for Europe?

foresight ◽  
2014 ◽  
Vol 16 (2) ◽  
pp. 95-108 ◽  
Author(s):  
Jean-Baptiste Gossé ◽  
Dominique Plihon
Keyword(s):  
Financial Markets ◽  
Capital Market ◽  
Financial Stability ◽  
Design Methodology ◽  
Financial Integration ◽  
Content Type ◽  
Realistic Option ◽  
The Future ◽  
Unstable Environment ◽  
Insight Into

Purpose – This article aims to provide insight into the future of financial markets and regulation in order to define what would be the best strategy for Europe. Design/methodology/approach – First the authors define the potential changes in financial markets and then the tools available for the regulator to tame them. Finally, they build five scenarios according to the main evolutions observed on the financial markets and on the tools used by the regulator to modify these trends. Findings – Among the five scenarios defined, two present highly unstable features since the regulator refuses to choose between financial opening and independently determining how to regulate finance in order to preserve financial stability. Three of them achieve financial stability. However, they are more or less efficient or feasible. In terms of market efficiency, the multi-polar scenario is the best and the fragmentation scenario is the worst, since gains of integration depend on the size of the new capital market. Regarding sovereignty of regulation, fragmentation is the best scenario and the multi-polar scenario is the worst, because it necessitates coordination at the global level which implies moving further away from respective national preferences. However, the more realistic option seems to be the regionalisation scenario: this level of coordination seems much more realistic than the global one; the market should be of sufficient size to enjoy substantial benefits of integration. Nevertheless, the “European government” might gradually increase the degree of financial integration outside Europe in line with the degree of cooperation with the rest of the world. Originality/value – Foresight studies on financial markets and regulation are quite rare. This may be explained by the difficulty to forecast what will be their evolution in the coming decades, not least because finance is fundamentally unstable. This paper provides a framework to consider what could be the best strategy of regulators in such an unstable environment.

Singapore variable capital companies: the many uses and benefits

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jerry Koh ◽  
Jonathan Lee
Keyword(s):  
Design Methodology ◽  
Plug And Play ◽  
Investment Funds ◽  
Content Type ◽  
Practical Analysis ◽  
Asset Classes ◽  
The Many

Purpose To show different ways the Singapore Variable Capital Company (“VCC”) can be employed and utilized. Design/methodology/approach Describes how the Singapore VCC can be used in master-feeder structures, umbrella structures, a “plug-and-play” model, sub-fund structures with different assets and different investors, open-ended structures, and structures that allow for tokenization of securities and the offering of VCC shares as digital securities. Findings The flexibility of the VCC allows it to be used across different fund strategies, investor classes and asset classes. Originality/value Practical analysis, guidance and market commentary from experienced investment funds lawyers.

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