With stretched asset valuations and increasing signs of illiquidity in what should really be deep and liquid asset markets, markets are keeping a keen eye on the biggest risks to global markets.
A Greek Eurozone exit. A China hard landing. ISIS advance. US monetary policy tightening – they’re the risks that immediately come to mind.
However, what are the odds that these risks, or perhaps others, might materialise? Is it time to sell up the farm and run to the hills, musket and tinned cans in hand, or are the chances of these events derailing the global economy close to non-existent?
Researchers at Deutsche Bank, in its monthly House View report, have evaluated the probability of a variety of different scenarios occurring in an attempt to discover what, if any, could be the next grey swan event facing the global economy.
This great chart below reveals what they believe are the greatest threats at present.
According to Deutsche the biggest risk is another Eurozone debt crisis sparked by the possible exit of Greece from the monetary union. In its opinion the probability of this risk has risen from April – not surprising given the news flow towards Greek debt negotiations at present.
While it’s understandable that Greece is seen as the greatest risk, given the prospect of a near-term rate hike from the US Federal Reserve, something that markets haven’t experienced since 2006, it’s slightly surprising that this risk, reflected by the number three, is deemed to be relatively insignificant.
Either way, we’ll likely to find out the answer on both soon.