Mubasher: A decade after the bankruptcy of the global financial service firm Lehman Brother triggered a plunge in markets, some analysts created a model aimed to estimate the timing and severity of the next financial crisis, predicting that it would strike in 2020.
The impact of the next financial crisis will not be steep as the past crises, Bloomberg reported on Thursday, citing analysis JPMorgan Chase.
Stocks could dive about 20% with the next crisis, the US corporate bond yield premiums will be hover near 1.15%, with a 35% drop in energy prices and a 29% decline in base metals.
In addition, the JPMorgan model projected a 48% tumble in emerging market stock market and a 14.4% fall in emerging currencies.
“Across assets, these projections look tame relative to what the GFC delivered and probably unalarming relative to the recession/crisis averages” of the past, JPMorgan Strategists John Normand and Federico Manicardi wrote.
JPMorgan analysts warned in a separate report that a financial market liquidity crisis could emerge.
“The shift from active to passive asset management, and specifically the decline of active value investors, reduces the ability of the market to prevent and recover from large drawdowns,” Joyce Chang and Jan Loeys wrote in the research note earlier this week.
Actively managed accounts made one-third of equity assets under management while active trading in single stocks represented 10% only of total trading.
This removed “a large pool of assets that would be standing ready to buy cheap public securities and backstop a market disruption.”
One silver lining, however, is the steep drop in emerging markets this year, as those markets reached a level that would help in curtailing extreme swings during the crisis.