The world’s economy is already recovering from the damage inflicted by the lockdown measures imposed to contain the spread of COVID-19 in 2020.
Institutional investors may be relieved, but they should never lose sight of the most daunting challenge, which is to manage portfolios successfully in the face of high levels of systemic risk.
The May 2021 edition of the European Central Bank’s Financial Stability Review shows that risk in the financial system remains elevated, despite the economic recovery.
The ECB argues that the stress of March 2020 showed evidence of systemic risk stemming from the non-bank financial sector, which includes pension funds and other institutional investors. Money market funds and open-ended investment funds faced pressure, due to liquidity mismatches and over 200 Europe-domiciled investment funds suspended redemptions during the period.
First the bad news on the corporate front.
According to the South African Reserve Bank’s (Sarb’s) latest Financial Stability Review (FSR), every major industry in South Africa reported a rise in corporate debt defaults in 2020. This comes as no surprise, given the unprecedented business challenges that the pandemic has presented and 2020’s 7% contraction in gross domestic product (GDP).
Still, the situation is not dire.
“Corporate defaults increased in 2020, but remain well below the levels seen following the global financial crisis. The sector’s default ratio jumped from 2% at the end of 2019 to 3.1% in the fourth quarter of 2020. Encouragingly, the default ratio remains well contained by historical standards (it peaked at 4.1% after the global financial crisis) and the rate of increase slowed significantly in the fourth quarter of 2020,” the FSR noted.
If central banks and regulators assume control, it will probably take a chunk out of the value of cryptocurrencies and leave some holders with substantial losses.
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by Tyler Durden
Thursday, May 20, 2021 - 08:00 AM
While a far cry from yesterday s morning rout, global stocks struggled for traction on Thursday after a jittery session on Wall Street where cryptocurrencies crashed and a hint of tapering talk from the U.S. Federal Reserve drove selling in the bond market and lifted the safe-haven dollar.
S&P futures dropped overnight for the 4th straight session after minutes from Fed’s meeting last month showed some officials were open to a debate at “upcoming meetings” on scaling back bond purchases if the U.S. economy continued to progress rapidly, while the ongoing rout in cryptos has not helped sentiment, and just like cryptos futures rebounded from their worst levels (yes, we once again live in a bizarro cojoined world where moves in cryptos move the broader market).