2019 financial market risks

Posted By Darren Winters on Jan 21, 2019


2019 financial market risks

The Global Risk Report for 2019 makes interesting reading for turbulent times and it could also give investors/traders a heads up on how 2019 financial market risks might impact their investment portfolios going forward

The latest Global Risk Report, published by the World Economic Forum (WEF), 114 pages in total, spells out known and unknown risks, uncertainties for the year ahead.

2019 financial market risks are abundant, according to the World Economic Forum risk report

But before peering over the WEF Risk Report to jot down a list of potential 2019 financial market risks a quote comes to mind, “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today ” Evan Esar.

So with the WEF Risk Report in focus and a healthy dose of skepticism, I am going to attempt to identify 2019 financial market risks.

Extreme weather events are on the top of the list of 2019 Global risks and financial market risks, according to the report

2019 financial market risks

Natural disasters, man-made environmental disasters and a failure of climate change mitigation disasters could all have an impact on geopolitics and the financial markets.

Insurance companies could be adversely impacted by a rise in the frequency of natural disasters and extreme weather events as the number of policyholders making claims soar due to natural, weather-related events.

Bio diversification loss, ecosystem collapse, and a water crisis could trigger mass migration, political instability, and financial market risks

Climate change is impacting global precipitation with drier regions likely to experience more droughts and wetter regions more storms

What if the next war is over water and not oil? A piece in National Geographic writes about the world’s water wars.

Technology is the second on the list likely to trigger global, financial market risks in 2019

WEF Risk Report highlights cyber attacks, data fraud or theft or a breakdown of the critical information infrastructure breakdown with an average likelihood risk of occurring.

The monetary authorities have figured out how to keep financial markets propped up even when negative news is announced. Nevertheless, other financial markets risks could arise from an electromagnetic pulse (EMP) attack from a rogue state. Even the mainstream media has highlighted the risk of an EMP attack.

The Wall Street Journal wrote a piece last year entitled, “North Korea Dreams of Turning Out the Lights”.

Economic-financial market risks are third on the list of the WEF Risk Report.

Most of us would have put asset bubbles in major economies, failure of mainstream financial institutions, deflation, unimaginable inflation, unemployment, underemployment as major financial market risks.

But the WEF Risk Report rates macro-economic risks at a less than average likelihood of occurring.

So investors/traders should fret more about environmental issues and an EMP attack rather than reckless monetary policy, a massive wealth imbalance, rising political instability, and a rapidly slowing global economy.

It is at this point that I become cynical about the WEF Risk Report which could be more of a don’t look here look there type of distraction.

The WEF Risk Report cites the rise of protectionism as an elevated economic 2019 financial market risk

The majority of respondents expect economic confrontation, frictions between major powers to worsen in 2019 with 91% of respondents expecting trade confrontation to increase this year.

Indeed, as I wrote in a piece entitled, “Trade War First Shots Have Been Fired”

I wrote hope for the best but expect the worse. Many pundits were calling a mere trade dispute last Summer that would soon be resolved I, on the other hand, I sensed more complications ahead.

Will deteriorating US-Sino relations will lead to a showdown in the South China Sea?

South China Sea shutdown could be the 2019 financial market risk black swan event

Political friction between major powers, populist and native agendas could add to the 2019 financial market risk. In Europe 2019 financial market risks could be elevated in Europe. If the UK manages to Brexit then a UK/EU trade war could be on the cards. If so it would disrupt the economic-political stability of the region which could have global economic consequences too.

Moreover, populist and native agendas are growing on the continent. The popular politics of survivalism is spreading in Europe. Leading political parties are becoming inward looking with ideologies completely incompatible with a European superstate, globalism. It is unclear how this clash of ideologies will be resolved particularly if the global economy takes a turn for the worse.

“Where opposing political groups previously expressed frustration with each other, they now express fear and anger,” Global Risks Report 2019.

Political friction is also playing out in the US with the longest government shutdown in history.

2019 financial market risks have been relatively mute to the US government shutdown which shows no signs of being resolved at the time of writing this piece.

For the first time ever, future generations in advanced economies believe that they will have a worse future than their parents. For example, in France, 60% of those surveyed said that they would be worse off than their parents, only 20% think they will have a better future.

When compared with China nearly 80% of those young surveyed think they will have a better future, according to the report.

So geopolitical, social 2019 financial market risks are abundant. Moreover, despite these challenging times that lie ahead, the will to collectively solve these risks is now lacking.

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