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Alternative Market Briefing

ESMA sees greater potential for downside risk in the market

Friday, September 01, 2023

Bailey McCann, Opalesque New York:

The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, is out with new market outlook report and it looks pretty grim.

According to the report, financial markets are adapting to the new economic environment of durably higher inflation and interest rates, however risks remain high. The regulator says markets are set to remain very sensitive to potential deteriorations in economic fundamentals or risks in the financial sector.

"Financial market sentiment improved in the first half of the year, despite the market stress originating from the US banking sector. Nonetheless, the economic outlook remains fragile and uncertainties continue to drive markets. ESMA is therefore keeping the overall risk assessment across its remit at the highest level," said ESMA Chair Verena Ross.

Ross added that there is a "high risk risk of corrections in a context of fragile market liquidity in equity and bond markets, with short-term risks for consumers due to volatility and the impact of inflation on real investment returns."

Risky rebounds

According to the the report, Europe's fund sector partly recovered after the historical decline experienced in 2022, primarily due to valuation effects. At EUR 18tn AuM it remains EUR 1.4tn below its end-2021 level. Performance has turned positive for both equity and bond funds. "In particular, fixed income funds, which reduced their maturity a......................

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