A lot of information! "Global Financial Stability Report" released, six highlights not to be missed
China-Singapore Jingwei client, April 15th, late at 14th Beijing time, the International Monetary Fund (IMF) released the "Global Financial Stability Report" (hereinafter referred to as the "Report"). The "Report" pointed out that the new coronary pneumonia epidemic has posed historic challenges to global financial markets, and multilateral cooperation is essential.
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The epidemic poses a historic challenge
"Report" shows that the new coronary pneumonia epidemic has brought historical challenges. In mid-February, market participants began to worry that the epidemic may evolve into a global epidemic, and the stock price fell sharply from the previous high level. Credit market spreads have soared, especially in high-risk areas such as high-yield bonds, leveraged loans and private debt, so that issuance activity in these areas has basically stalled.
"Report" said that due to weak global demand, and OPEC + countries failed to reach an agreement to reduce production, oil prices plummeted, which led to a further deterioration in risk appetite. Turbulent market conditions have led investors to switch to high-quality assets, and the yields of safe-haven bonds have plummeted.
Signs of pressure on major short-term financing markets
The "Report" believes that multiple factors have amplified asset price changes, resulting in a sharp tightening of financial conditions at an unprecedented rate. Signs of pressure on major short-term financing markets, including the global dollar market, are very similar to market dynamics during the financial crisis a decade ago.
According to the Report, market liquidity has deteriorated significantly, including markets that have traditionally been viewed as having better depth. Leverage investors began to be under pressure. According to reports, some investors were forced to close some positions to meet margin requirements and rebalance their portfolios.
Emerging and frontier market economies are facing the most severe storm
"Report" said that emerging and frontier market economies are facing the most severe storm. They have experienced the most dramatic reversal of securities investment flows in history, whether in dollar terms or as a share of GDP in emerging and frontier markets.
The Report pointed out that the reduction in external debt financing may put pressure on borrowers with higher leverage and less credibility. This may lead to an increase in the scale of debt restructuring, which constitutes a test of the existing debt disposal framework.
The Report recommends that many emerging market economies are facing turbulent market conditions, and these pressures should be managed through exchange rate flexibility where feasible.
The top priority is to save lives
"Report" said that this historic challenge is bound to require strong policies to deal with. The top priority is to save lives and implement appropriate prevention and control measures to avoid overwhelming the health system. National authorities need to provide support to the people and companies most affected by the epidemic.
Countries have adopted a series of policies
"Report" pointed out that authorities around the world have issued a series of policies. The April 2020 “Financial Monitoring Report” describes the package of financial support that has been announced by governments around the world. It is necessary for the authorities to take large-scale, timely, temporary and targeted financial measures to ensure that the temporary stagnation of economic activities will not cause lasting damage to the economic productivity and society as a whole.
"Report" also said that global central banks have taken bold and decisive actions, including loosening monetary policy, buying a series of assets, providing liquidity for the financial system, to offset the impact of tightening financial conditions and maintain the flow of credit to the real economy.
The Report recommends that policymakers need to strike a balance between maintaining financial stability and supporting economic activities. First, banks should use their existing capital and liquidity buffers to absorb losses and financing pressure. Second, to prudently manage the liquidity risk brought about by large-scale capital outflows, the regulatory authorities should encourage fund management companies to make full use of existing liquidity tools in the interests of fund share holders. In addition, the supervisory authority should take accurate and targeted measures and ensure the transparency of policies to strengthen market resilience, such as the fuse mechanism.
Multilateral cooperation is essential
The Report emphasizes that multilateral cooperation is essential to alleviate the impact of the new coronary pneumonia epidemic and its damage to the global economic and financial system.
The report said that the President of the International Monetary Fund and the President of the World Bank have called on official bilateral creditors to suspend debt servicing requirements for countries that are below the threshold of the International Development Association ’s business and request debt extension during the fight against the epidemic. The International Monetary Fund has $ 1 trillion in available resources and is actively supporting member countries. (Sino-Singapore Jingwei app)