Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 28

While we were not looking, economic globalisation had occurred far faster than anyone was accounting for. No longer can risk be confined to the properties of a specific security and its environmental conditions, but an investor has to look at risk on a worldwide basis. In the first decade of the 2000s, you couldn’t open a newspaper without seeing reference to the butterfly effect, whereby a butterfly flapping its wings in China results in a tornado in Kansas. Note that the formal name for the butterfly effect is sensitive dependence on initial conditions, giving rise to just about any observation about an economy becoming expandable into grand deductions about markets near and far.

Since the Asian Crisis, when a big risk event occurs, market players judge whether the risks will be contained to one country or region or are global in nature, and react accordingly. Investors’ collective attitude towards risk becomes a factor in its own right and influences how markets react to shocks. As a report of the Bank for International Settlements (BIS) put it:

“Bad news in a market situation where investor risk appetite is already low is likely to result in a much greater repricing of risky assets than in periods where it is high. The dynamic stance of the risk appetite of market participants as a sentiment could thus serve as an important contributing factor in the transmission of shocks through the financial system. Furthermore, as it might itself be influenced by the situation in financial markets, it could work as a multiplier. Accordingly, taking into account the risk appetite/risk aversion of investors and its evolution has become an important element of assessing the condition and stability of financial markets.” ^[4]

In recent years, larger risk aversion on a global scale has been triggered most often by events taking place in the United States. The market panicked after the NASDAQ Composite crash in 2000, in the wake of the 9/11 attack of the World Trade Center, in the lead-up to the Iraq War in 2003, following Hurricanes Katrina and Rita in 2005, and during the subprime mortgage crisis that began to unfold in late 2008.

In contrast, the euro zone, which came officially into existence in January 1999, was the root cause of fewer worldwide risk events until recently. Small effects in the euro/dollar exchange rate were occasioned by the French and Dutch No vote on the referendum in favour of the European Union’s proposed constitution in 2005 and Ireland’s rejection of the Lisbon Treaty in 2008 (later accepted in the 2009 vote), but these events were contained to Europe. Having previously avoided being the source of a shock catalyst, Europe has more than made up for it with the peripheral country debt crisis that began in the fall of 2009, with Greece admitting it had cooked the budget books on the Olympics. This set off a chain of developments that has ended up endangering the structure and composition of the euro zone itself.

Asia had a chance to offer a shock again, in the form of the Shanghai Surprise from October 2007 to October 2008. The SSE Shanghai Composite Index was already falling from a peak in October 2007 when (on 28 February 2008) it fell 9% in a single day. The S&P fell the next day by the most since 9/11/01. European and Japanese markets fell. Certain other emerging market stock markets, like Brazil, Russia and Turkey, also suffered big declines – but not all emerging markets.

The Shanghai event was curious for many reasons, not least that at the time the exchange had limited international participation and the drop was triggered by reports of impending new restriction on transactions, including a proposed tax. By what logic does this isolated market – and why do other regional markets – have such an outsized effect, such as is illustrated in Figure 2.1, globally?

Figure 2.1 – the Shanghai Surprise (SSE Shanghai Composite Index (Dark)) vs. S&P 500, Nikkei 225 and FTSE 100