20180801-NATIXIS-What_part_of_finance_could_trigger_a_crisis__6页_755kb

Flash Economics Summary

Core Content

This document from Flash Economics explores the potential triggers of a new global financial crisis. It examines various components of the global financial system to identify which areas pose the greatest risk.

Main Views

• Complex Financial Products: The report suggests that complex financial products, such as derivatives and asset-backed securities (ABS), are not likely to trigger a crisis. There has been a significant decline in their outstanding amounts since the 2008-2009 crisis.

• OECD Country Bank Lending: Bank lending in OECD countries has also declined significantly, reducing the risk of a crisis stemming from this area.

• OECD Debt and Equity Markets:

  • Public Debt: Public debt ratios in OECD countries have risen markedly.
  • Equity Valuation: Equity markets in OECD countries are reasonably valued, and valuations are much lower than before the 2000 equity market crisis.

• Emerging Markets: The report highlights that emerging markets are more at risk due to:

  • Sharp increases in all debt ratios (public, private, and total).
  • Low equity market valuations, suggesting potential overvaluation or undervaluation.

Key Information

Riskiest Components of Global Finance

• OECD Government Bonds: These are identified as the most dangerous part of global finance due to rising public debt ratios.
• All Bond Classes in Emerging Countries: Public, private, and total bond classes in emerging countries are considered a potential source of a new crisis due to their high debt levels.

Global Debt and Monetary Policy Trends

• Total Global Debt: Has continued to rise, which could indicate a potential for future financial instability.
• Monetary Policy: Remains highly expansionary, with central banks maintaining low interest rates and low yields on government bonds.

Charts and Data

• Chart 1A: Shows the increase in total global debt as a percentage of nominal GDP.
• Chart 1B: Illustrates the expansionary nature of global monetary policy, including central bank interest rates and government bond yields.
• Chart 2A and 2B: Demonstrate the decline in outstanding OTC derivatives and ABS since the 2008 crisis.
• Chart 3A, 3B, and 3C: Present the evolution of credit, corporate and household debt ratios, and public debt ratios in OECD countries.
• Chart 4A and 4B: Show market capitalisation and equity valuations in OECD countries.
• Chart 5A, 5B, 5C, and 5D: Display total and public debt ratios, market capitalisation, and equity valuations in emerging countries.

Conclusion

The report concludes that while complex financial products and OECD bank lending are less likely to trigger a crisis, OECD government bonds and all bond classes in emerging countries remain the most dangerous parts of the global financial system. These areas are highlighted due to their high debt levels and potential for instability.

Disclaimer

• The document is intended for professionals and qualified investors only.
• It is strictly confidential and should not be disclosed to third parties without consent.
• The information is not personalized and does not constitute investment recommendations.
• No liability is accepted for any use of the information or for any actions based on it.
• The views expressed are those of the authors and may differ from those of Natixis or its affiliates.
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• Natixis has not verified or conducted independent analysis of the information contained in the document.

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