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The AMF publishes its 2023 Markets and Risk Outlook

Against a backdrop of tighter monetary policies and rising inflation, the 2023 edition of the AMF Markets and Risk Outlook highlights that the risk of an asset price correction remains high. Financial stability risks are linked to the ability of financial market participants to adapt to the new interest rate environment by managing their liquidity and credit risk.

In 2022, financial markets were impacted by a slight correction reflected in the CAC 40 (reinvested dividends) decreasing by 6.7% . The collapse of TerraLuna in May 2022 and the bankruptcy of the FTX trading platform in November 2022 also caused a sharp fall in the cryptocurrency market. However, since the beginning of 2023, the CAC 40 has rebounded strongly, reaching historic levels and minimising the extent of the correction seen to date. In a context of uncertainty, the risk of falling asset prices remains substantial. In terms of financial stability, financial market participants must adapt to this new interest-rate environment which is leading to a relative scarcity of liquidity and could result in an increase in credit risk.

This edition of the Risk Outlook highlights recent events that illustrate how the risks associated with the vulnerabilities of certain market participants have materialised in a high interest rate environment. In the United Kingdom, the use of leverage by defined-benefit pension funds led to a massive a sell-off on the government bond markets and intervention by the Bank of England to limit systemic risk. In the first quarter of 2023, rapid withdrawals of deposits from several regional banks in the United States and the subsequent bankruptcies also illustrate the problem of liquidity risk associated with the issue of asset valuation.

The interest rate environment has a direct impact on the cost of credit and can also make it more difficult to refinance outstanding debt. In the corporate bond segment, for example, liquidity conditions have deteriorated significantly and volatility has risen sharply since spring 2022. This pressure on financing costs could lead to an increase in defaults, particularly among companies classified as speculative grade by the rating agencies. 

At this stage, the AMF has observed a fall in assets under management in French funds in 2022, mainly due to a valuation effect. Money market funds have benefited from the rise in interest rates, with a positive impact on returns beginning in the last quarter of 2022. However, the AMF continues to pay close attention to investment funds with exposure to the commercial real estate sector, following a sharp contraction in trading volumes and prices. The private equity sector is also showing signs of a downturn with fewer investments and divestments. This raises the question about refinancing conditions for these actors in an environment of higher interest rates.

The AMF also notes that households are reallocating savings to regulated savings accounts and, for the first time, term deposits. To a much lesser extent, stock market activity by retail investors has increased slightly in 2023 after contracting in the second half of 2022. The appetite for risk among retail investors still seems moderate.

Lastly, the Risk Outlook shows that structural risks remain high. The risk of cyberattacks has increased amid high geopolitical tensions in several regions of the world.

The financing needs of the energy transition has led to the development of sustainable bond issues, particularly green bonds. In this sense, the initiative for a new European standard for green bonds is a major step in the right direction, as is the implementation of the Corporate Sustainability Reporting Directive (CSRD) and its detailed reporting standards starting in 2024.

2023 Markets and Risk Outlook

About the AMF
The AMF is an independent public authority responsible for ensuring that savings invested in financial products are protected and that investors are provided with adequate information. The AMF also supervises the orderly operations of markets.Visit our website 

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