If you're wondering where the next financial crisis may hit, you may want to listen to Cassandra

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  • Nomura has created a model known as “Cassandra” that has reliably signalled at least two-thirds of the past 50 financial crises.
  • Right now, Cassandra is warning about a potential financial crisis in Hong Kong in the coming years.
  • China’s risk is also elevated, although it’s fallen in recent quarters. Turkey is also on the radar. It’s been in the financial news quite a bit recently.

If you’re wondering where the next financial crisis may hit, it may pay to listen to Cassandra.

Now we know what you’re thinking: who the heck is Cassandra and how does she know which nations are at risk?

Well Cassandra is not a person, although it is a model, created by researchers at Normura to evaluate where financial risks are building.

“We designed Cassandra to assess the risk of domestic credit and financial crises,” said Rob Subbaraman and Michael Loo, Economists at Nomura.

Using five financial metrics, referred to as early warning indicators (EWIs), Cassandra has signalled over two-thirds of all financial crises that have occurred since the early 1990s.

Over rolling three-year period, each EWI that is triggered is added to an individual nations score. And if more than 30 EWIs are accumulated over this period, Cassandra says trouble may be brewing.

Indeed, of the 17 occasions when a country has recorded 30 or more EWIs over a three-year period, 14 experienced a financial crisis within the next three years. 12 also saw a sharp drop in domestic demand within the same time frame.

So Cassandra has a pretty good track record for predicting periods of financial turmoil. So what nation is deemed to be at most risk right now?

According to the metrics at the end of September last year, Hong Kong remains head and shoulders above the rest.

“After summing the flashing signals from the five EWIs in the 12 quarters to Q3 2018, we see that Cassandra’s strongest warning is for Hong Kong, with 48 flashing signals, up from 47 in Q2 2018 and the highest since the Asian crisis [in 1997],” said Subbaraman and Loo.

“Encouragingly, the number of flashing signals in China fell for a fifth straight quarter to 25 from a peak of 32, but financial risks could rise again if macro policies are eased too aggressively to shore up economic growth.”


Outside of China, Cassandra is indicating a much lower risk in the remaining 30 nations monitored, although it’s noteworthy that Turkey took out third spot on the list.

It’s been in the news quite a bit recently given some extreme moves in its stock and bond markets, as well as in the Turkish lira.

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