Investors should prepare for months in which market readjustments will be overshadowed by the threat of a new “financial crash”, according to Allianz chief economist Ludovic Subran.
“We have all the ingredients of a so-called Minsky moment,” he told Bloomberg Television on Monday, referencing economist Hyman Minsky’s description of a precipitous drop in asset prices after a buildup of debt. “You see that, everywhere, these liquidity pools or liquidity crises are beginning to be visible.”
Subran is not the first to use that description since a series of US bank failures began in March, but his use of the term and his list of associated risks underscore that the The circumstances that gave rise to that crisis and sank Credit Suisse Group AG have not gone away either.
Questions and answers to invest in the United States
“Of course commercial real estate and the vicious circle with regional banks in the US are a concern,” he said. “I am concerned about the erroneous estimation of corporate credit risk, especially when I think that high yield spreads are still too compressed, to be honest. And I am also looking at non-bank financial intermediaries”.
Although the sudden change in global monetary policy, characterized by sharp increases in interest rates, generated the current tensions, there is more to it than that, said Subran, who previously worked at the World Bank and the French Ministry of Finance.
Perspectives on the banking sector
“Everyone’s problem now is the abrupt adjustment, but then there is an additional factor of incorrect risk management“, said. “A new financial crash could come from the banking sector, it could come from some very specialized commercial real estate hedge funds, but it could come from a mix of both.”
Investors are in for a bumpy ride, Subran added.
“We do not believe that we are in the new version of the global financial crisis,” said. “But I think these liberating moments, these cathartic moments, will become more frequent in the coming months for sure.”
LM / ED
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