There Were Always Going to Be Bumps in the Road During the Reversal of Cheap Money

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The reversal of cheap money propping up global financial markets would always be a bumpy ride, and the recent market turmoil shows just how rocky that road can be.

Analysts at SVB Credit Suisse recently assessed the various financial crises worldwide and their potential for contagion risk.

Their assessment found that with US Treasury yields rising and political uncertainty in Europe and Asia, investors are beginning to pull back from riskier assets like equities. This leads to greater volatility across stock markets, with many indexes hitting multi-week lows.

Jay Sivapalan from Live Wire said, “Our experience tells us that markets will revert to focusing on economic fundamentals, as they always do after a period of noise and distraction.”

Post-GFC Growth: A Challenge for Less Resilient Businesses

The reversal of years of ultra-low interest rates and raised liquidity has created an environment of market malaise. Businesses heavily relying on post-Global Financial Crisis growth are now proving to be less than resilient.

Central banks, regulators should primarily manage the reversal process, and opportunistic capital providers to ensure an orderly transition.

Central banks have already begun to raise interest rates in some countries, signalling a shift away from ultra-low monetary policies that have been in place for over a decade.

Regulators worldwide are also attempting to mitigate potential financial instability caused by the reversal of cheap money.

Meanwhile, opportunistic capital providers are taking advantage of reduced valuations across certain asset classes due to the pullback of riskier assets by larger investors.

The fear of contagion is particularly concerning for global markets as it could have far-reaching implications if it were to rock the entire financial system.

Nowadays, investors and market participants keep abreast of developments across all major economies to prepare for future trends so as not to be caught off guard by sudden shifts in investor sentiment.

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