Allianz warned investors about the threat of a new financial disaster

The Chief Economist of the German insurance company Allianz, Ludovyk Subran, advised investors to prepare for months of market correction and the threat of a new “financial catastrophe”. This was reported by Bloomberg.

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What the economist says

“We have all the components of the so-called Minsk moment,” he said in an interview with Bloomberg Television. Subran does not rule out a sharp fall in asset prices, since investors who previously bought them with borrowed funds may not be able to service their debts.

“Of course, the situation in the commercial real estate market and the “vicious cycle” in regional banks in the USA cause serious concern,” he said.

However, he is also concerned about the incorrect assessment of corporate credit risk. In addition, another factor may be problems with non-bank financial intermediaries, such as hedge funds and pension funds.

Read: JPMorgan warned about a possible “Minsk moment” on the stock market

The tightening of monetary policy by some major central banks caused the current tension in the markets, but it is not the only thing, Subran said.

“The problem for everyone now is the very sharp tightening of monetary policy, but there is one more factor — improper risk management,” he said. “A new financial catastrophe may occur in the banking sector, it may also occur due to some specialized hedge funds that work in the field of commercial real estate, or it may occur immediately due to a combination of these two factors.”

According to the Allianz expert, high volatility awaits investors in the markets in the near future.

“We don’t think we’re going through a remake of the global financial crisis of 2008,” he said. However, according to Subran, sharp movements in the market will be more frequent in the next few months. He also reported that he expects a recession in the US in the second half of the year.

Let’s remind

Ludovyk Subran is not the first to warn about the possibility of the “Moment of Minsk” since the series of bankruptcies of American banks began in March.

Earlier, JPMorgan’s chief strategist for global markets, Marko Kolanovich, reported that bank bankruptcies, market shocks and economic uncertainty against the background of rising interest rates increased the likelihood of a “Minsk moment”.

As a result, investors can start massively selling assets to repay their loans, which will provoke a collapse in market prices, he warned.

What is “Moment of Minsk”

“Minsk Moment” is a term that denotes the beginning of a sharp reduction in the country’s debt load and the subsequent drop in asset prices.

Before the onset of the “Minsk moment”, investors actively used borrowed funds to buy assets. As a result, the debt load grows, and a bubble is formed in the market. However, subsequently, many borrowers find themselves unable to pay their debts, and any destabilizing event can lead to a panic sale of purchased assets. This provokes a collapse in their prices.

The term was introduced by the American economist Heimnen Minsky in the 20s of the 20th century.

Source: Ministry of Finance

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