Ex­perts dif­fer on safety of the mar­kets now

Weekend Witness - - Money - TRIS­TAN HANSON

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.

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