Last week saw the news of two US banks collapsing and one of Europe’s biggest banks requiring a bail out.
This has naturally caused investors and commentators to draw parallels between the current instability and the 2008 Global Financial Crisis (GFC). Colonial First State has analysed the situation and their opinion is that while there is likely to be some short-term volatility, this is not the next GFC.
What's happened?
The US share market has fallen, off the back of news of the collapse of Silicon Valley Bank (SVB) — a California-based regional bank primarily set up to provide capital to the now troubled technology industry.
The banks failure is reportedly the result of severe funding constraints, triggered by a deposit exodus and higher interest rates, and compounded by subdued tech industry investment.
Additionally, Credit Suisse (Europe) as required a sizable loan from the Swiss National Bank to ensure its continuation and liquidity of investors’ funds.
The US central bank quickly stepped in to protect deposits in the US guaranteeing all deposits.
Colonial First State fund managers do not see this as a systematic global banking or financial crisis. They note that large banks globally have much more robust capital ratios and better liquidity than at any time in the last 30 years. They say this is particularly true of Australian banks which have some of the highest capital ratios in the world.
This view is shared by Dr Shane Oliver, Chief Economist for AMP who says Australian banks are “well capitalised” and have a “much broader deposit base” than US banks.
What does this mean for investors?
According to Dr Shane Oliver investors should back their long-term strategies.
“If you’re a long-term investor, like your superannuation member, I think it’s probably best to stick to your strategy because trying to time markets is incredibly hard. When people take money out in a panic, they miss out on a rebound. It's inevitable, markets have their ups and downs, we’ve obviously been going through that over the last year now and that’s continuing but trying to time that is very difficult.”
What can we expect to see next?
Colonial First State and Dr Oliver expect a period of higher volatility will likely persist.
This will mean continued volatility in the short term as markets continue to digest the highest levels of inflation for over three decades and interest rates not seen since prior to the GFC.
Reach out to the Magnify Team with any concerns, we're here to help you create a life well lived and reduce your scale of worry.
Sources:
Fed moves to minimise “flow on” risks amid SVB collapse – Charles Kadib, Investor Daily, 16/3/2023
What you need to know about the Credit Suisse crisis and the collapse of US banks – Colonial First State 17/3/2023
Commentaires