Wall Street stunned by inflation and housing market risks (getty)
Since the beginning of the year, global financial markets have been besieged by four major crises, which have caused confusion among investment fund managers and wealth management banks around the world. These crises, as summed up by experts, are the Russian war against Ukraine and its dangerous consequences, the risks of inflation on investment returns, the rise in the dollar exchange rate and its repercussions on emerging economies, and the dangers of stagnation in large economies, especially the US economy.
So far, the dollar’s exchange rate has risen to its highest levels against a basket of currencies and has become a threat to emerging markets and their currencies and to the contraction of economic growth in China.
Since the beginning of the year, the US currency has risen by 10%, according to the global “DXY” index, which measures the value of major currencies, and it has risen by 16% over the past 12 months, which means the highest rate of increase in 20 years.
Regarding investment risks, Lindsey Bell, an investment expert at the US company “Ally Financial”, said in comments reported by the “Wall Street Journal” that four out of the 5 indicators you follow indicate the performance of the US financial company to measure. market is under high risk rates.
In addition, the index that measures the risks known as “VIX” indicates that stock markets may fall at rates that are higher than the rates observed during the coming months.
But despite this pessimistic view of the future of investing in global stock exchanges, data published by Bank of America on Friday indicates that investors have placed net investments in global financial markets that totaled more than $ 20 billion in the past week that ended on Friday, May. 27..
This figure is the largest rate of net investment observed by global financial markets during 10 weeks. The net investment means the fair value after the sale of shares has been deducted from the volume of purchases.
The US bank noted in its report that the “Standard & Poor’s 500” index, the main index that measures the performance of US equities, rose by 6.6% in the past week, although it remained 13.3% lower than its level at the beginning of this year.
Despite this, however, most of the heads of companies in a poll published by “Yahoo Finance” indicate that the US market will decline further by the end of the second quarter of this year, and expectations are that the European economy a cycle of recession this year.
Regarding the risks of global economic growth, the economist at the Institute of International Finance in Washington, Robin Brook, sees that the eurozone is heading for an economic recession due to the Ukraine war and its effect on energy prices and the weakness of the euro currency.
Brooke said in a tweet on his Twitter account on Sunday that China is experiencing a phase of economic downturn due to the Corona pandemic and the subsequent closures in economic activity, and the high cost of real estate loans in the United States threatens the real estate market and threatens the housing market collapse.
Economists note that the Ukrainian war has made the old continent a dangerous area for investors, as there is a state of uncertainty among investors about how long the war will last, and how the continent’s politicians can address its devastating consequences after it stopped.
It is also unknown, even if the war stops, it will put an end to Russian President Vladimir Putin’s ambitions to control Eastern Europe. Thus, the countries of Eastern Europe, which are affiliated with the former Soviet Union and are currently affiliated with the European Union, have become a high-risk and repulsive area for investors.
With the continuation of the Russian war in Ukraine, the volume of investments fleeing Eastern Europe may increase. Analysts do not rule out that this investment flight will pose a set of challenges in Europe, ranging from a lack of spending funding to unemployment and the rise of Yemeni extremist currents.
The financing of public expenditure expenditures in Eastern Europe is currently facing a real crisis, as the financing of expenditure in these countries depends on the sale of sovereign bonds in the global financial markets at a time when the price of the euro is weak, which means that it is not attractive to investors with a high geopolitical risk rate.
As for the dangers of emerging markets, observers have noted an increase in the volume of investments fleeing emerging markets this year as some $ 26 billion in foreign investment has fled the Indian market since October, according to a tweet by Dr. Shama Muhammad on her Twitter account Sunday.
Shama said this rate of investment flight has not been seen in India since the global financial crisis in 2008, in which the amount of foreign money that fled from it amounted to $ 15 billion.
India seems to be outperforming other emerging markets as it benefits from cheap oil-derived instruments from Russian companies, compared to emerging markets such as Turkey which is dependent on Russian energy and is experiencing Western banking pressure to repay its short-term foreign debt.
The Egyptian market experienced a flight of hot investments of $ 20 billion in the first quarter of this year, according to previous statements by Egyptian Prime Minister Mostafa Madbouly.
Coinciding with these crises is the challenge of the strong dollar, which is expected to increase its exchange rate this year and increase the victims of the war crisis in Ukraine and its repercussions on emerging and poor economies.
Many countries may therefore face bankruptcy or inability to pay debt installments in the current or next year if the Russian war against Ukraine continues.
So far, the Russian war against Ukraine has increased the prices of food and petroleum products from financial and economic crises in several countries classified by the International Monetary Fund as economically weak and located in Asia, Africa and Latin America.
Sri Lanka has been witnessing political unrest for months due to bankruptcy, and was the first victim of this year’s crises, but analysts believe the list of victims of these crises will be long.
According to the International Monetary Fund, there are many countries facing financial and food crises and energy shortages.
The IMF has been holding talks for months to help the economies of Egypt, Tunisia, Pakistan, Ghana and countries in Latin America, hoping to help them overcome the dangers of high-energy price interactions that threaten the future of political stability. Pakistan, for example, suffers from frequent power outages and high food prices. Ghana is also suffering from the collapse of the national currency.
The US economist, who specializes in hard currency, Steve Hank says annual inflation in Ghana has reached 45.63% and the Ghanaian central bank has raised interest rates to about 17% in hopes of boosting the price of the local currency against the dollar. support. Hank says Ghana’s debt crisis is interacting and could flare up at any moment.
Regarding the repercussions of the dollar’s rise in global financial markets, and its threat to emerging economies, it is noted that the dollar is the most important currency in settling financial transactions, issuing sovereign debt bonds and global commercial settlement exchanges.
In addition, the dollar still accounts for the bulk of the foreign balance in global central banks, where its share is close to 60% of total global reserves, and so despite the Moscow-Beijing camp’s attempt to get rid of the “dollarization of the global economy ”by marketing the Chinese yuan as an alternative, the dollar remains the The investment security currency in moments of unrest and war as is now happening in the Russian war in Ukraine.
Commercial banks therefore avoid geopolitical risks and collect dollars and invest them in US assets rather than lending them to emerging economies.
This factor raises the concern of investors on the one hand to lose their investments in the debt of emerging economies, and on the other hand high inflation hits the real return on their investments in the US market.