Recent Uncertain Stock Markets and Associated Event Risk

In the past several months, there have been fears in global financial markets about possible downturns in the economy due to weak global markets. More recently these fears have been associated with the slowdown of Chinese markets as well as the volatility of emerging markets. Global commodity markets continue to soften because of both diminishing demand from China as well as political issues in the Middle East.

These fears were realized last week with steep declines in all markets. Continuing from these losses, the Dow Jones Industrial Average saw losses of greater than 1000 points, recovering to a level less than 200 points lower midday, before plunging to close nearly 600 points lower. The impact of the stock market downturn has spread to the fixed income, commodity, and FX markets. The Chinese slowdown could cause a downturn in global economy. The U.S. dollar has weakened against major currencies while strengthening against emerging market currencies. Treasury markets have surged and pushed towards higher rates as investors take flight from other markets. Oil prices fell more than 6% Monday, settling near multi-year lows. The extreme volatility causes significant margin requirements, straining the markets even further.

Under these uncertain market situations, it is important to be aware of potential event losses and political event based losses such as the current crisis, which was triggered by sell-offs in major Chinese stock markets, the downgrade of the Chinese yuan a week ago, followed by an additional major sell-off in these markets.

Gateway Partners had reported to one of its prospective clients the potential for significant losses of greater than 20% due to the recent slowdown in Chinese markets. Strong, independent risk management and risk analysis can make all the difference in such situations.

Gateway Partners will be addressing issues such as these as the featured speakers for upcoming summits in both Madrid and Beijing this fall. We are proud to partner with The Summit Zone to speak to our European colleagues October 30 in Madrid as well as our Asian colleagues In Beijing November 19-20.