The risk of cataclysm has not gone away

Even before the world’s stock markets had their latest wobble two weeks ago, an interesting debate was gaining currency at some lunch tables in the City. As always, the debate in the moneyed classes is primarily about risk. It’s only those without money who spend their time worrying about beating the market and making the most out of any investment opportunity they can find. For those who have, discretion has always been the better part of value.

The debate stems from the fact that risk, in its conventional financial sense, appears to have gone walkabout. The way most investment assets are priced these days, there appears to be barely a risk in the sky. Just about everything has been going up in price, and may well be going higher. Investors seem to have adopted the Blairite principle that, hey, things can only get better.

But in the real world, risks rarely disappear. They merely disappear from view. Instead, what can change, and change quickly, are perceptions. However rosy the prospect, any unexpected event, even an unsubstantiated rumour, has the capacity to change those perceptions in an instant, even if only for a few days.

Most popular

Jawad Iqbal

Blue Origin’s all-female space flight was a step backwards for feminism

Forget the flapping wings of a butterfly and its unexpected consequences elsewhere in the world. In today’s round-the-clock markets, it doesn’t take much to send a ripple of anxiety skimming round the time zones. Within hours of the recent stock-market plunge in Shanghai (as Elliot Wilson describes on page 42), London and Wall Street followed suit. Yet the Shanghai market is so small that it barely registers on the global stage; the idea that events there could threaten investors round the world is implausible at best.

There is a more likely explanation for these synchronised global falls: share prices have been on such a strong run in the last six months that they simply ran out of momentum.