The European Securities and Markets Authority (ESMA) latest risk report has found that the overall assessment of risk levels in EU markets under its remit remains unchanged. Market and credit risks remain very high – the highest level – while liquidity and contagion risk remain high.
The risk outlook has deteriorated following the result of the UK referendum on EU membership. Market, liquidity and contagion risks may increase going forward, as political and event risks have intensified, and the macroeconomic environment may deteriorate. The deteriorating liquidity risk outlook reflects increased fund outflows following the referendum, leading to the suspension of redemptions in a number of open-ended funds holding UK commercial property. ESMA updated its risk outlook to reflect the outcome of the referendum.
The details are outlined in its Report on Trends, Risks and Vulnerabilities No. 2, 2016 (TRV) on European Union (EU) markets, which covers market developments from January to June 2016.
In the first part of the reporting period, key trends included high volatility in equity and commodity markets, reflecting valuation concerns, slower emerging markets growth and turmoil in the energy sector caused by falling oil prices. Volatile fund returns and a reassessment of credit risk premia also contributed to portfolio and investment fund outflows. Towards the end of the semester, the outcome of the UK EU referendum had a significant impact in foreign exchange and equity markets, while EU financial market infrastructures proved resilient.
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ESMA, as part of its ongoing market surveillance, will update its report semi-annually, complemented by its quarterly Risk Dashboard. The results of the report have also been shared with the European Commission, Parliament and Council.
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