Conference Presentation, Panel
Global Capital Markets
Milken InstituteGerard Baker, Mary Callahan Erdoes, Michael Corbat, Joshua Friedman, Scott Minerd, Ning Tang
- Global economic growth is projected to be the most synchronous and fastest in a decade, with Europe and Japan experiencing accelerating prospects after a decade of stagnation.
- The current global expansion, which began in June 2009 and has reached 106 months, is expected to continue and potentially become the longest since World War II.
- Significant economies are not currently threatened by recession in the near to intermediate term, though US growth is estimated to exceed 1.75% to 2% absent political interruptions.
- A transition to a more normal monetary environment is anticipated, yet uncertainty remains regarding the removal of quantitative easing and the potential for increased volatility as global liquidity recedes through tightening by the US, ECB, and Bank of Japan.
- US consumer drivers including housing, employment, and rising wages are described as strong with unemployment at historic lows, while the intermediate economic impact of tax reform remains to be fully integrated.
- Chinese development is expected to pivot over the next five-year period toward technology-driven innovation, supported by a 200-million-person middle class and ultra-high-net-worth individuals demanding improved healthcare and education.
- China's financial system is predicted to shift from banking dominance toward direct investment and capital markets, with technology enabling small business lending via mobile transactional data.
- Corporate debt-to-GDP ratios are at record highs, creating potential risks for corporate free cash flow and stability in the 2019-2020 period as the effects of tax cuts subside.
- Trade disputes and protectionist rhetoric are expected to escalate, with China signaling willingness to retaliate against US measures on aluminum and steel, while insisting on no trade imbalance could threaten the US dollar's reserve currency status.
- The high-yield market faces a risk of unwinding significantly if rates rise and flows reverse, potentially mirroring the 6-point drop seen in early 2016 due to current market illiquidity.
- Financial markets are expected to become more prone to volatility and less efficient due to risk shifting off bank balance sheets, a decline in public company numbers, and the potential for passive investing to magnify movements during index rebalancing.
- Regulatory leadership is expected to adopt a slightly looser stance on capital measures as new chairs are appointed, though crypto assets are anticipated to face increasing regulatory challenges.
- Primary systemic risks include cyber warfare, the potential for liquidity crises where underlying assets are less liquid than exchange-traded products, and the possibility of fiscal stimulus colliding with monetary and immigration policies to reach a breaking point.