2018-09-15 — bloomberg.com
``A decade after the collapse of Lehman Brothers sparked a plunge in markets and a raft of emergency measures, strategists at the bank have created a model aimed at gauging the timing and severity of the next financial crisis. And they reckon investors should pencil it in for 2020.
The good news is, the next one will probably generate a somewhat less painful hit than past episodes, according to their analysis. The bad news? Diminished financial market liquidity since the 2008 implosion is a "wildcard" that's tough to game out...
Assuming an average-length recession, the model came up with the following peak-to-trough performance estimates for different asset classes in the next crisis, according to the note:
U.S. stock slide of about 20 percent.
A jump in U.S. corporate-bond yield premiums of about 1.15 percentage points.
A 35 percent tumble in energy prices and 29 percent slump in base metals.
A 2.79 percentage point widening in spreads on emerging-nation government debt.
A 48 percent slide in emerging-market stocks, and a 14.4 percent drop in emerging currencies.
[But] JPMorgan's Marko Kolanovic has previously concluded that the big shift away from actively managed investing -- through the rise of index funds, exchange-traded funds and quantitative-based trading strategies -- has escalated the danger of market disruptions. He and his colleagues wrote in a separate note Monday of the potential for a future "Great Liquidity Crisis." ... This change has "eliminated a large pool of assets that would be standing ready to buy cheap public securities and backstop a market disruption," Chang and Loeys warned.
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