20180808-NATIXIS-Risk_aversion_rises_so_often_it_will_end_up_by_not_falling_back_down_5页_739kb

Flash Economics Summary

Core Content

This document discusses the increasing frequency of risk aversion in financial markets and its potential long-term implications. It highlights that periods of high risk aversion have occurred repeatedly in the past, including in 1998, 2000-2002, 2008-2009, 2011, 2015-2016, and since the second quarter of 2018. The author suggests that the repeated occurrence of crises has led to a shift in market expectations, potentially resulting in a permanently high level of risk aversion.

Main Points

• Rising Frequency of Risk Aversion: High risk aversion episodes are becoming more common, driven by various types of crises such as emerging market crises, equity market crashes, subprime-related issues, and political events.
• Risk Perception Index: Natixis has developed a risk perception index that tracks these increases in risk aversion over time.
• Expectation-Driven Risk Aversion: Financial market participants are increasingly expecting future crises, which in turn may trigger actual crises, leading to a self-fulfilling cycle of high risk aversion.
• Consequences of Persistent Risk Aversion:
  • Credit Spreads: Both investment-grade and high-yield credit spreads have been affected.
  • Equity Risk Premia: Higher risk premia are expected, which affects stock valuations.
  • Sovereign Bond Spreads: Peripheral euro-zone countries and emerging markets face higher borrowing costs.
• Impact on Growth: A permanently high level of risk aversion could lead to higher borrowing costs, which may slow economic growth.

Key Information

• Risk Aversion Episodes: The following periods have seen notable increases in risk aversion:
  • 1997-1998: Emerging country crisis
  • 2000-2002: Equity market crisis
  • 2008-2009: Subprime crisis
  • 2011: Euro-zone crisis
  • 2013: Emerging country crisis
  • 2015: Emerging country and Chinese crises
  • 2016: French elections
  • 2018: Geopolitical crisis, protectionist risk, Italian crisis
• Long-Term Effects: If risk aversion becomes a constant expectation, it could lead to a permanent state of high risk aversion, which would have negative impacts on financial markets and economies.
• Conclusion: The increasing frequency of crises is leading to more clustered periods of risk aversion, which may ultimately slow economic growth.

Disclaimer and Legal Notes

• The document is intended for professional and qualified investors only.
• It is strictly confidential and cannot be disclosed to third parties without prior written consent.
• It does not constitute a financial analysis or personalized investment recommendation.
• Natixis has not verified or conducted independent analysis of the information.
• The information is based on public data and is not a complete analysis of any product.
• The document is subject to regulatory restrictions in various jurisdictions.
• Natixis operates under the supervision of multiple financial authorities, including the European Central Bank, ACPR, AMF, FCA, and others in different countries.
• The views expressed in the document are the personal opinions of the authors and do not necessarily reflect the views of Natixis or its affiliates.

Summary

The repeated and frequent occurrence of financial crises has led to a pattern of increasing risk aversion in markets. As these events become more common, market participants may start to expect them, potentially leading to a self-fulfilling cycle of high risk aversion. This could result in persistently elevated borrowing costs for companies, OECD countries, and emerging markets, which may ultimately slow economic growth. The document warns that the proliferation of crises is not without consequence and may have lasting effects on financial stability and economic performance.