A decade af­ter Lehman, in­vestors hunt for clues to next cri­sis

Financial Chronicle - - MONEY GAME - AN­DREW MAYEDA & ENDA CUR­RAN

It’s some­thing that hap­pens ev­ery five to seven years” is how JPMor­gan Chase & Co CEO Jamie Di­mon once de­fined a fi­nan­cial cri­sis to his daugh­ter. Queen El­iz­a­beth II asked “why did no­body no­tice” the seeds of the last one.

Stung by their fail­ure to spot the tur­moil of 10 years ago and two decades since Asian mar­kets were roiled, pol­i­cy­mak­ers, traders and econ­o­mists are look­ing at the clock as they won­der when and where the next melt­down will hit.

As it holds its an­nual meet­ings in Bali, In­done­sia this week, the In­ter­na­tional Mone­tary Fund is al­ready warn­ing in­vestors may be un­der­es­ti­mat­ing the risk of a fi­nan­cial shock. One of the ax­ioms of fi­nan­cial his­tory though is that no two crises are the same so the search is on for po­ten­tial trig­gers in the econ­omy and mar­kets. Here is a run­down of po­ten­tial hot spots:s Lately, Bei­jing has been tak­ing steps to slow the rate of cor­po­rate debt growth, but to­tal debt out­side the bank­ing sec­tor con­tin­ued to rise last year and re­mains on an un­sus­tain­able path.

The odds are against a soft land­ing. Of 43 cases of rapid growth in debt-to-GDP sim­i­lar to China’s, only five ended with­out a ma­jor slow­down or fi­nan­cial cri­sis, ac­cord­ing to the IMF.

“While a China hard land­ing still re­mains a low­prob­a­bil­ity sce­nario, if it did in fact oc­cur, it would likely un­leash a tsunami of con­ta­gion across the Asia-Pa­cific re­gion,” says Ra­jiv Biswas, chief econ­o­mist for the Asi­aPa­cific at IHS Markit. In­ter­est-rate hikes by the Fed­eral Re­serve cou­pled with a ris­ing green­back have sent shock waves through emerg­ing mar­kets, mak­ing it harder for com­pa­nies that bor­rowed in dol­lars to pay their debts. Ar­gentina is bor­row­ing $57 bil­lion from the IMF, the largest in his­tory. The Turk­ish lira plunged as in­vestors doubted the abil­ity of Re­cep Er­do­gan’s ad­min­is­tra­tion to con­tain in­fla­tion.

“Emerg­ing mar­kets that are over-lever­aged on US dol­lar debt and large oil im­porters are prob­a­bly the most vul­ner­a­ble,” said Hak Bin Chua, se­nior econ­o­mist at May­bank Kim Eng in Hong Kong. In the last cri­sis, US house­hold debt was the tick­ing time bomb. Con­sumers have since tight­ened their belts, but US com­pa­nies have picked up the slack. Tak­ing ad­van­tage of low rates, US com­pa­nies have is­sued record amounts of debt, push­ing key debt ra­tios to near 30-year highs. It may be harder for the world to re­spond this time to tur­bu­lence, be­cause cen­tral banks still haven’t raised rates back to nor­mal lev­els.

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