Experts differ on safety of the markets now
ces logging their biggest fall in more than a month as worries grew the U.S. Federal Reserve would trim its stimulus programme.
Naspers topped the decliners’ list on the bluechip index, tracking a selloff in its Chinese money spinner Tencent Holdings.
The JSE Top40 index fell 1,36% to 41 739,02 and the Allshare was down 1,2% at 46 462,14.
— Reuters. options available to him or her. Only when a customer refuses to acknowledge his or her debt and disputes our collection attempt at the bank will an emolument attachment order (via court order) be used to collect any outstanding debt — as this is the only route available to recoup the debt in these circumstances.”
He said only a small percentage of Wonga’s customers fall into arrears, and the company is unable to reach agreement with only a tiny perA DISTINCT “postcrisis” feel is in the Davos air centage of them. at this year’s World Economic Forum, with many
“Shortterm credit providers such as Wonga topics under discussion representing longerterm, are reluctant to use this as a means of recouping structural themes, such as sustainable growth, the debt due to the lengthy process to institute a garenvironment, technology, science and demogranishee order, and will often try to work withphy.the consumer to find an alternative means of repayThere seems to be genuine relief that the finanment,” he said. — Business Editor. cial and European debt crises are behind us. But a panel this week did ask, “Are markets safer now?”
Comparing today’s financial system to that which delivered the worst financial shock for 80 years was a low hurdle to set, as host Martin Wolf acknowledged, so the debate was framed in terms of “is the system reasonably safe?”.
Unsurprisingly, Douglas Flint (HSBC chairperson) and Anthony Jenkins (Barclays CEO) argued that markets are much safer now, citing improvements in market infrastructure and oversight, increased resilience to shocks and better incentive structures.
Taking the other side were Stanford finance professor Anat Admati and hedgefund investor Paul Singer. For them, leverage remains too high, the financial system is undercapitalised and subject to many risks — from huge derivative positions, concentration risk, opacity, government subsidies and bad incentives, to the distortions from Quantitative Easing.
Overall, the audience agreed the system is safer, with 62% voting in favour, and 38% against. What should we make of this? There clearly has been some progress to solidify financial institutions since the Lehman crisis.
The world economy remains more highly leveraged than before. What progress has been made in reducing privatesector debt in areas has largely been offset by sharply rising publicsector debt. The global economy remains driven by asset prices. Any severe shock to asset prices would risk another economic crisis. The trouble is that regulations to make banks safer have been working in the opposite direction of an economic recovery, which is badly needed.
In our view, the world economy is less vulnerable now than probably any time in the past decade. Growth is accelerating, imbalances have lessened and the financial system is safer. But it doesn’t mean more should not be done to make it safer still. If nothing else, decisions to improve the health of the financial system (therefore the world economy) must not be rushed. • Tristan Hanson is head of asset allocation at Ashburton Investments.