Inflation, US monetary policy and bank-stress all faded as investor fear factors in 2024 while cyber-risk recorded the biggest scare-jump as measured by global financial markets infrastructure giant, DTCC.
DTCC, short for the Depository Trust & Clearing Corporation, found cyber-risk leapt from fourth to second in its annual ‘Systemic Risk Barometer Survey’ published last week with 69 per cent of respondents citing the issue as a potential danger to the global economy next year compared to 50 per cent in the previous poll.
However, geopolitical tension topped the risk charts for the third year in succession on 84 per cent of those surveyed, up 3 per cent over the 12-month period.
Timothy Cuddihy, DTCC group chief risk officer,” said in a release: “Given the evolving geopolitical and cyber security landscape and the potential for these risks to amplify each other, it was not surprising to see these risks at the top of this year’s survey.”
At the same time, inflation fears fell from 55 per cent last year to just 32 per cent 12 months later as respondents also dialled-down concerns about US Federal Reserve policy rates from 34 per cent to 17 per cent.
Worries about a banking sector crash also halved to 16 per cent year-on-year while 26 per cent of those surveyed cited commercial real estate as a broad risk this year, down from 34 per cent in the 2023 study.
Despite most individual global economic risk factors either falling or remaining steady versus the 2023 results, the DTCC probe found more than 90 per cent of respondents rated the probability of a “high-impact systemic event” occurring next year as either medium, high or very high: 11 per cent opted for ‘very high’, 44 per cent ticked ‘high’ and a further 36 per cent took the ‘middle’ road.
While still low down the order, ‘fintech’ risks rose to 25 per cent from 15 per cent year-on-year with artificial intelligence (or associated AI terms) ranking as the most likely techno-source of angst in 2025 by 69 per cent.
Also last week in NZ, Harbour Asset Management released its traditional top 10 list of risks and opportunities for the year ahead, noting pricey equity market values as “the proverbial elephant in the room”.
“High levels of valuation have often preceded large market drawdowns, though valuations themselves have not been the catalyst,” Harbour says. “Markets often gain confidence to pay a higher multiple for a company when they have high confidence in earnings growth persisting.”
Authored by Harbour directors, Hamish Pepper and Chris Di Leva, the 2025 potential risk/opportunity ledger includes a turnaround for NZ equity markets, the end of US ‘exceptionalism’ coupled with flaccid S&P500 returns, luck running out for Australia, an AI-led carbon emissions blow-out or even a solar flare black-out.
“The risk from solar flares is expected to increase in 2025 as the sun reaches the peak of its 11-year activity cycle,” Harbour says. “Powerful solar storms could interfere with satellites, disrupt GPS systems, and potentially cause temporary blackouts in power grids. This could affect various sectors, including communication, transportation, and energy distribution.”
Or maybe the sun will just shine.