Global financial markets rediscovering risk appetite

HONG KONG - Global financial markets have entered a new phase of risk appetite driven by global push factors, according to BBVA Bank, which says sovereign risk premia in some peripheral European countries has reached levels not observed since the onset of the 2008 financial crisis. “Western Central Bank policies are still supporting the risk-taking, while some important Emerging Central Banks are joining the ‘push’, says BBVA in its quarterly Country Risk Report.

“Financial markets seem to be in a generalised risk-on mood,” says BBVA. “Financial tensions and sovereign risk premia are decreasing across the board in both developed and emerging markets.
“The spillovers of the Ukraine crisis have receded and the military coup in Thailand has not had a visible impact. Global Risk Aversion (VIX) has been steadily decreasing for the past four months and it is currently at levels not observed since the beginning of 2007. However, risk in the Middle East is on the rise in Iraq and neighbouring countries. (And) the sharp recovery in capital flows in emerging markets is moderating, although still in positive ground.”
BBVA warns, however, that while a reduction in financial tensions and lower risk premia have supported the increase in risk appetite, complacency is out the question. “The extraordinary market liquidity conditions may not last forever and could reverse. Global risk aversion is also at historically low levels, but it should move to more neutral levels once the push factors from major central banks start to die out.”  www.bbvaresearch.com (ATI).