ESMA Finds Continued High Risks As Financial Markets Remain Highly Volatile

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Wednesday, February 19, 2020 /02:21 PM  / By Mondovisione / Header Image Credit: ESMA

 

The European Securities and Markets Authority (ESMA), the EU's securities regulator, today publishes the first Trends, Risks and Vulnerabilities (TRV) report of 2020. ESMA identifies continued high risks and a weaker economic outlook as markets remain highly sensitive to geopolitical events. The risk outlook is stable, however risks are high, particularly in the securities markets and for retail investors.

 

This TRV is the first report since the entry into force of the new ESA Regulation on 1 January 2020 and, in line with ESMA's new mandate, includes new sections about sustainable finance and consumer protection.

 

Risk outlook is stable, with an increase in potential sources of financial risk

 

Market risk remained very high in the second half of 2019, due to excessive asset valuations in the context of weaker growth prospects, looser monetary policy and continuing uncertainties such as those on Brexit and on US-China trade relations. Equity markets experienced recurring episodes of volatility and bond spreads tightened in signs of continuing search-for-yield. Markets remained highly sensitive to events, as was visible in reactions to recent oil price shocks and the US repo squeeze;

 

Credit risk and liquidity risk remained high. Credit risk, in particular, remains elevated with deteriorating corporate debt quality and increasing risks of fallen angels (bonds being downgraded to below BBB) as the share of BBB-rated debt grows;

 

Consumer risks persist across key investment products as market risks increase. Overall, retail investors remained cautious, predominantly allocating savings to bank deposits:

 

Looking ahead, ESMA sees a weaker economic outlook and continuing uncertainty over the potential impact of the coronavirus, global trade negotiations and Brexit.


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