What are 2011’s top 10 fat tail risks?
1) European peripherals – apocalypse scenario is realized resulting in a depression, including the breakup of the Euro
2) Protectionism – pressure put on Asian countries to appreciate their currencies and correct imbalances fails, pushing the US and/or Europe to enter trade wars or adopt protective measures
3) A US double-dip – still cannot be ruled out following recent weakness in house prices and the build-up in inventory which may cause default rates to rise
4) US municipal debt, home foreclosures, current investigation on insider trading – any one of these issues can impair US bank profitability and liquidity
5) Capital controls – more draconian measures adopted by Asian policymakers resulting in a sharp withdrawal of capital
6) Geopolitical risks flare up in the region – starting with a divided political regime in Thailand compounded by concerns of the King's health; North Korea ups the ante with the South in its military maneuvers; violence in Pakistan escalates and spills over into neighbouring India
7) Sharp rise in inflation – driven by higher food & commodity prices results in unrest in the developing Asian economies
8) China property prices – the decline in house prices is much greater than the consensus estimate of 10-15%
9) US and UK’s AAA ratings are downgraded
10) US$’s status as a reserve currency is challenged
Source: Nomura
1) European peripherals – apocalypse scenario is realized resulting in a depression, including the breakup of the Euro
2) Protectionism – pressure put on Asian countries to appreciate their currencies and correct imbalances fails, pushing the US and/or Europe to enter trade wars or adopt protective measures
3) A US double-dip – still cannot be ruled out following recent weakness in house prices and the build-up in inventory which may cause default rates to rise
4) US municipal debt, home foreclosures, current investigation on insider trading – any one of these issues can impair US bank profitability and liquidity
5) Capital controls – more draconian measures adopted by Asian policymakers resulting in a sharp withdrawal of capital
6) Geopolitical risks flare up in the region – starting with a divided political regime in Thailand compounded by concerns of the King's health; North Korea ups the ante with the South in its military maneuvers; violence in Pakistan escalates and spills over into neighbouring India
7) Sharp rise in inflation – driven by higher food & commodity prices results in unrest in the developing Asian economies
8) China property prices – the decline in house prices is much greater than the consensus estimate of 10-15%
9) US and UK’s AAA ratings are downgraded
10) US$’s status as a reserve currency is challenged
Source: Nomura