# Analysis-Fearing war in Xi’s next term, Taiwan bolsters defences Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-10-12 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: IMF Warns of Global Financial Stability Risks Meta Description: The IMF warns of disorderly repricing in markets, increased financial stability risks, and key indicators of stress in latest report. URL: https://financedigest.com/analysis-fearing-war-in-xis-next-term-taiwan-bolsters-defenceshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-10-11t190124z2lynxmpei9a127rtroptp4imf-worldbank-1737287328644-compressed.jpg) (Reuters) – The International Monetary Fund warned on Tuesday of a disorderly repricing in markets, saying global financial stability risks have increased, raising the potential of contagion and spillovers of stress between markets. The IMF’s Global Financial Stability Report, which warned of the risks to markets, came as the Fund also cut its growth outlook in its latest World Economic Outlook. Here are key indicators of stress and risks the IMF sees to financial stability: \\* LIQUIDITY Deteriorating [market liquidity](https://www.financedigest.com/zero-liquid-discharge-market-estimates-the-market-to-expand-at-8-to-9-cagr-from-2021-to-2031-2.html "Zero Liquid Discharge Market Estimates The Market To Expand At 8 to 9% CAGR From 2021 to 2031") conditions may pose [risks to financial](https://www.financedigest.com/financial-risks-of-climate-change-overplayed-senior-hsbc-banker-says.html "Financial risks of climate change overplayed, senior HSBC banker says") stability, the IMF said. The recent dramatic [stress in the UK gilts market shows how sudden price moves](https://www.financedigest.com/10-tips-to-overcome-the-stress-of-moving-office.html "10 Tips to Overcome the Stress of Moving Office") combined with forced selling and deleveraging can lead to disorderly conditions that could threaten broader market functioning and stability, the IMF said. \\* CURRENCY SWAPS International short-term [dollar funding markets](https://www.financedigest.com/dollar-rebounds-as-brainard-assures-markets-fed-will-stay-the-course.html "Dollar rebounds as Brainard assures markets Fed will stay the course") have begun to show signs of concern with a widening of the cross-currency basis swap spreads, a proxy for the marginal cost of offshore US dollar funding, the IMF said. On the supply side, the increase in FRA-OIS spread (a measure of interbank credit risk) and heightened currency volatility pose a risk of a potential [drop in the supply of US dollar funding](https://www.financedigest.com/uk-drops-plan-to-tax-sovereign-wealth-funds.html "UK drops plan to tax sovereign wealth funds"), the report said. \\* EMERGING MARKET [BANKS FACE](https://www.financedigest.com/analysis-u-s-banks-face-trillion-dollar-reverse-repo-headache.html "Analysis: U.S. banks face trillion-dollar reverse repo headache") RISKS Global stress tests for banks show that, under a severe downturn scenario, up to 29 percent of emerging market [bank assets could breach minimum capital](https://www.financedigest.com/austrian-regulator-orders-system-relevant-banks-to-up-capital-buffers.html "Austrian regulator orders system-relevant banks to up capital buffers") requirements, the IMF said. \\* CORPORATE [CREDIT DEFAULT RISK](https://www.financedigest.com/aon-assists-freddie-mac-to-reach-5bn-risk-transfer-milestone-for-u-s-mortgage-credit-business.html "AON ASSISTS FREDDIE MAC TO REACH BN RISK TRANSFER MILESTONE FOR U.S. MORTGAGE CREDIT BUSINESS") Corporate credit is facing increased risk of default, with sub-investment-grade [firms more exposed to a turn in the credit](https://www.financedigest.com/some-credit-suisse-at1-bondholders-seek-legal-advice-law-firms.html "Some Credit Suisse AT1 bondholders seek legal advice -law firms") cycle and deteriorating investor risk appetite, the IMF said. \\* OPEN-END [INVESTMENT FUNDS](https://www.financedigest.com/bbva-invests-50-million-in-kai-fu-lees-al-investment-fund-sinovation-fund-iv.html "BBVA invests million in Kai-Fu Lee’s Al investment fund Sinovation Fund IV") Open-end [investment funds](https://www.financedigest.com/mercia-awarded-midlands-engine-investment-fund.html "Mercia awarded Midlands Engine Investment Fund") are noted as particularly vulnerable. The total value of their net assets has quadrupled since 2008 the IMF said. Open-end funds that offer daily redemptions while [holding illiquid assets](https://www.financedigest.com/bahamas-regulator-holds-ftx-assets-pending-delivery-to-customers-creditors.html "Bahamas regulator holds FTX assets pending delivery to customers, creditors") can amplify the effects of adverse shocks by raising the likelihood of investor runs and asset fire sales, the IMF said. \\* EXCHANGE [TRADED FUNDS](https://www.financedigest.com/trade-finance-distribution-platform-tradeteqsecures-us6-3mn-in-seed-extension-funding.html "Trade finance distribution platform Tradeteqsecures US.3mn in seed extension funding") While exchange traded funds (ETFs) are not [vulnerable to investor](https://www.financedigest.com/its-back-to-school-for-investors-as-uk-student-accommodation-less-vulnerable-to-brexit-shock-reports-jll.html "It’s back to school for investors as UK student accommodation “less vulnerable to Brexit shock” reports JLL") runs, they can suffer when market liquidity deteriorates and the balance sheets of broker-dealers are constrained so they are limited in their ability to match buyers and sellers, the IMF said. Moreover, leveraged and inverse ETFs can introduce additional volatility in securities markets because of the need to rebalance the leveraged positions at the [end of the trading day](https://www.financedigest.com/amazon-to-lay-off-staff-in-u-s-canada-and-costa-rica-by-end-of-day.html "Amazon to lay off staff in U.S., Canada and Costa Rica by end of day"), the IMF said. \\* [CHINA PROPERTY](https://www.financedigest.com/shares-mixed-on-fed-warning-china-acts-on-property.html "Shares mixed on Fed warning, China acts on property") SECTOR The property sector downturn in China means a shock [resulting](https://www.financedigest.com/immediate-lift-of-oxford-property-prices-to-result-from-new-direct-high-speed-rail-connection-with-london.html "“Immediate lift” of Oxford property prices to result from new direct high speed rail connection with London") both from property developer defaults and homebuyer boycotts of mortgage payments would have a significant impact on bank balance sheets, the IMF’s report said. \\* LEVERAGE [LOAN MARKET CREDIT](https://www.financedigest.com/6-reasons-to-take-a-car-loan-from-a-credit-union.html "6 Reasons to Take a Car Loan From a Credit Union") CRUNCH Tighter financial conditions, mounting liquidity strains, and decelerating earnings growth could presage [ratings downgrades and eventual defaults and lower](https://www.financedigest.com/how-insurtech-is-helping-to-lower-car-insurance-rates.html "How InsurTech is Helping to Lower Car Insurance Rates") returns for collateralized loan obligations (CLO) investors, the IMF said. The underperformance of these investors could lead to a decline in new CLO [issuance and a credit](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") crunch in the leveraged loan market, reducing funding available to existing sub-investment-grade firms, it said. (Compiled by Megan Davies; Editing by Chizu Nomiyama) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---