Against this backdrop, the report pointed to growing risk of fragmentation in global financial markets, the prospect of rapid shifts in capital allocation and intensified current volatility amid sharp changes in trade patterns. It also pointed to the potential for the rise in uncertainty to “amplify market volatility, liquidity risk, and increased credit spreads in debt markets.”
In particular, securities firms, markets and asset managers are exposed to rapid market reactions “given recent record high U.S. stock valuations and historically low EU corporate bond spreads,” it said.
The report also highlighted the risk posed by rising leverage in alternative investment funds, increased exposure to U.S. equities in the European fund sector and the risk of shocks to funds that face liquidity mismatches.
Additionally, the rebound in cryptoasset valuations and volatility, along with the sector’s increased connections to traditional financial markets, also pose a growing risk, it said.
“Financial institutions must navigate growing uncertainties, including exposure to international markets, liquidity risks and the evolving role of artificial…
