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September 12, 2017

ESMA published its second report of the year on trends, risks, and vulnerabilities in the EU. The report identifies high asset price valuations as the major risk for European financial markets in the second half of 2017. This report covers market developments from January to June 2017 and provides an outlook for the next reporting period.

The risk assessment for the second half of 2017 remains unchanged from the first half of 2017. The key risk drivers are uncertainties around geopolitical developments, the resilience of economic growth, and debt sustainability. Market performance reflected increasing market confidence and improved expectations on the future economic outlook in EU and globally. This is echoed in increased capital flows into strategies yielding higher returns. Substantive risk sources include economic growth in the EU and elsewhere that needs to prove resilient; structural problems in many EU member states continuing to be addressed; internationally, rising public and private debt levels of increasing concern; persistence of high asset price valuations; and prevailing geopolitical and political uncertainties.

 

Brexit-related uncertainties remain among the most important political sources of risk. Market and credit risks, as a result of geopolitical, growth, and debt concerns, continued to be very high, while liquidity and contagion risks remained stable but high. The outlook on operational risk remains elevated but the outlook is now negative due to heightened concerns around cyber security. The report  on trends, risks, and vulnerabilities is updated twice annually and is complemented by the quarterly Risk Dashboard. 

 

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Keywords: Europe, EU, Securities, Market Risk, Credit Risk, Liquidity Risk, Operational Risk, ESMA

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