Читать книгу The Foreign Exchange Matrix - Barbara Rockefeller - Страница 29

Analysts don’t have a good explanation for large-scale contagion. To call it a Pavlovian or herd-instinct response is both insulting to the investor class and insufficient. Why should one market drop in sync but not others? One reasonable-sounding scenario is that economies that are already vulnerable – due to trade and budget deficits, stressed institutions, inadequate legal and regulatory institutions, etc. – will be affected the most by a shock. These are the countries that sophisticated and knowledgeable investors will exit first. But that doesn’t account for the major markets in advanced countries following the Shanghai stock index. It also doesn’t account for a shock in one asset class in one country affecting different asset classes in other countries that are linked only in the most indirect ways. Something else is going on.

The something else is perception of riskiness in the world at large, and perception of riskiness is heavily influenced by what academics call information asymmetry. At a basic level, if one party to a transaction has more information than the other party, the informed party has more power and will likely be the profitable one. Think of inside information, moral hazard and why governments impose disclosure rules on minimum safety conditions in real estate.

Information asymmetry is illustrated perfectly in every home sale – the seller knows the furnace is on its last legs, the roof will need replacement in two years, and there is some asbestos lurking in the cellar ceiling. The selling agent may or may not know these things, and the buyer certainly doesn’t know them and will not be told them unless the law requires disclosure of each specific drawback by name. The buyer is at risk of overpaying for the house, and cannot count on the agent to volunteer adverse information because the agent works for the seller.

In the home sale case, the seller is more knowledgeable about the asset than the buyer. In the case of financial market information asymmetry, emerging market investors generally tend to have less information than advanced country investors about emerging markets overall, including their home market. The foreign investors tend to have more news sources, including sources that may not be permitted in the emerging market itself. In fact, sometimes the flow of adverse information runs from one emerging market through the advanced investors to a second emerging market before the domestic investors in the original emerging market catch on. That’s just one example of how a lopsided flow of information can move.

In market contagion, the less-knowledgeable party knows that he is less knowledgeable and fears being cheated, so that he sells even when there is no evidence that the quality of the asset has changed. When an investor knows he is less-knowledgeable, he assumes the more-knowledgeable parties have information he does not have, so he joins the stampede. Thus, when the presumed knowledgeable parties started a sell-off in overvalued Thai equities, it spread to other risky assets elsewhere in Asia and then Argentina and Russia, even though Malaysians, for example, complained it was unfair to be tarred with the Thai brush.

In many instances, the domestic investors were authentically more knowledgeable about their home assets and knew perfectly well that there was, objectively, no change in the conditions that should determine their prices – except that advanced country investors were fleeing emerging markets indiscriminately (in what investment managers term cross-market rebalancing). By assuming that emerging markets share the same market and economic risks to the same degree, the managers can transmit contagion in the form of falling prices even in the absence of directly relevant news, and sometimes between markets that do not, in fact, share the same risks.

It can work the other way around, too, like the home seller failing to disclose asbestos in the cellar ceiling. Unscrupulous asset sellers can offer fraudulent products, like some Chinese companies listed on the New York Stock Exchange and other exchanges, that are the paper equivalent of knock-off Rolex watches and Hermes scarves. The buyers who know they are less-knowledgeable about the true financial condition of these companies are the first to exit on news of a regulatory investigation.

The second important point is that information flow and thus market effects are not linear – they ricochet around in the pinball motion mentioned in Chapter 1. Sometimes contagion can occur in the absence of information and is based on unfounded assumptions. ^[5] Therefore, what traders and investors need is a general indicator of global riskiness. If global riskiness is low, the probability of a shock in a small context becoming a major crisis is also low. If the market feels riskiness is high, the slightest rumble can set off shock waves, and perhaps in some asset classes linked to the source by many degrees of separation.

Unfortunately, we do not yet have a single index of global riskiness that works in all instances. But we do have a selection of indicators and indices that send out warning sounds ahead of shocks that cause global stock markets to plummet and safe-haven buying of developed market bonds.

Let’s look at these now.