Editor-in-post author of the documentary/new wave financial opinion (Bkopleader)

In 1969, the “grey cattle” and the “black penguin” will probably throw together to build a more complex global risk profile. Under this pattern, risk mitigation requires a critical shift in the state of the role of the United States, a focus on time shifts in risk concentration, and identification of points of convergence and sewing of risk.

“Consideration is therefore precarious, so that the problem is considered.” Global market songs and dances in 2017, with multiple risks shattered in 2018, and with the global economic recovery plunging in 2019, the accumulated risks will become increasingly visible over the long term, and the global hub of risk is expected to rise significantly. Addressing global risk patterns at a time of volatility will be key to achieving resilience and stability.

We believe that, in 2019, the “grey cattle” will be further stretched along the lines of economic financial risk and will focus on trade friction, global risk preference reversals and emerging market currency risks. On the other hand, the “black penguin” will continue to be sharpened on the geopolitical front, and the probability of outbreaks and the intensity of shocks will increase. Changes in United States policy, setbacks in European integration and the loss of control of regional conflicts will be the most dangerous trigger.

Overall, in 2019, the “grey cattle” and the “black penguin” will probably throw together to build a more complex global risk profile. Under this pattern, risk mitigation requires a critical shift in the state of the role of the United States, a focus on time shifts in risk concentration, and identification of points of convergence and sewing of risk.

The focus of the economic financial “grey cattle” has shifted. As noted in previous studies in this series, compared to 2018, although the global economy was still on track in 2019, the downward risk was generally expanded and the “crisis back stream” was rolled over. As a result, in the global economic finance sector, the risk of “grey cattle” will shift significantly. Overall, the “grey cattle” will be a major step, further reducing policy space in major economies. Structurally, the focus of the risk of “grey cattle” will change compared with last year, and structural risk loopholes will arise if national “risk prevention” initiatives are not adjusted in time.

First, the risk of global trade friction. The global trade friction in 2018 was transformed from a drive to an operation, and its negative impact in 2019 would be accelerated to the top “grey cattle” risk. From the trend of trade friction, according to IMF projections, the current account deficit in the United States in 2019, as a source of friction in global trade, will be expanded by 26.4 per cent per year, reaching its peak after 2000, indicating that its trade deficit is accelerating and that it is expected to continue to sustain its protectionism high. As a result, the trend of friction in global trade is increasing, with obvious sluggishness in the short term. This trend is reflected in the cumulative downward adjustment of 0.67 and 0.23 percentage points for global trade growth forecasts for 2019 and 2020, respectively, since July 2018 to date. In terms of the impact of trade friction, the focus is short-term and the direct impact of trade friction on the real economy is relatively limited, but can generate serious secondary shocks by countering market expectations, weakening investment confidence and financing environments. For example, IMF forecasts that if United States tariff sanctions against China increased by $267 billion in 2019, they will have a direct impact of 0.08 percentage points on the global economic growth rate, and if markets are expected to deteriorate, the resulting secondary shock will be up to -0.53 percentage points, far exceeding the direct impact. Over the long term, 2019 was a year of renewal of global structural reforms. However, the volatility of trade has led, on the one hand, to global dislocation of resources and to the erosion of overall factor productivity, increasing the urgency of structural reforms and, on the other hand, to a slowdown in the pace of structural reforms due to demand-side policies, which has the potential to recycle the vulnerable cycle of “policy stimulus---structure-structure distortion-re-return fatigue-policy stimulus” and to a bottleneck in the recovery of the current round. In view of this, the negative impact of trade friction is assessed, with short-term expectations and long-term reforms. Economies that are able to manage effectively and sustain structural reforms are expected to sustain a long-term recovery under volatile trade friction.

Second, global risk preferences are reversed. In January 2018, our report noted that the instigation of risk preferences will be a real threat to global markets. This assertion was validated by global market shocks in February and October. This “grey cattle” risk is expected to increase further in the course of the year, and a new “financial-economic” risk shock chain has been developed, and the threat will pervade the entire year. As far as financial markets are concerned, global risk preferences are already in a sensitive and fragile state of instability after adjustments in 2018 and will serve as a trigger for risk shocks. In 2018, the Bantee price shock, which is an indicator of the willingness to speculate, was pushed down by the VIX index epicentre, above the level of 2017, but lower than the historical average after the international financial crisis, indicating that the adjustment of risk preferences is ongoing but not yet complete. At the same time, although long cattle of risk assets such as United States equity and high-income bonds are expected to shrink, their valuation levels are still historically high, in contrast to the prospects for a long period of economic slowdown, resulting in greater room for adjustment. As a result, once external shocks such as the escalation of trade friction, internal and external political chewings, currency deflations, etc., are encountered, risk preferences will be reversed at a more precipitous rate, leading to widespread shocks in financial markets, with the depth, frequency and scope of adjustments expected to exceed 2018. As far as the real economy is concerned, the threat of “debt of debt” is further tightened and provides amplifier for risk shocks. According to the latest data from BIS, as of the first quarter of 2018, the share of non-financial sector liabilities in G20 countries in GDP had risen to historical peaks. The real economy under high leverage levels will be more sensitive to fluctuations in the financial environment. Once risk preferences are reversed, the risk of liquidity in financial markets may trigger large-scale default risk in the real economy and thus escalate into a systemic crisis. Along the lines of this “financial-economic” risk-conversion chain, the long-term return rate of United States debt will be a forward-looking trend. Global risk preferences are reversed if the rate of return on United States debt jumps over 10 years.