Global ETF News Older than One Year
FinTech, investor sophistication and financial portfolio choices
April 21, 2023--Summary Focus
Financial technology (fintech) enables data to be more efficiently used to solve problems related to asymmetric information. In finance, artificial intelligence can be used to increase financial inclusion and reduce the costs of financial services. However, fintech can also lead to discrimination among investor groups, particularly if they have different levels of access to, or use of, the new technology.
For instance, fintech can allow sophisticated market players to acquire better data and formulate profitable trading strategies, while less sophisticated ones may lose out. So are advances in financial technology democratising finance and levelling the playing field?
Contribution
We use a portfolio theory model to analyse the relationship between financial technology advancements, investors' sophistication levels and financial portfolios' composition and returns. The model assumes that investors have different capacities to process information, as measured by their level of financial literacy, and choose which assets to learn about and invest in.
Source: BIS
BIS-The changing nexus between commodity prices and the dollar: causes and implications
April 13, 2023--Key takeaways
Commodity prices and the US dollar have moved in tandem recently, in contrast to their usual statistical pattern of moving in opposite directions.
The causes of the change in the relationship are partly temporary, such as the unusual combination of recent shocks, and partly structural, such as the United States' emergence as a net energy exporter.
The change in the nexus compounds the stagflationary effects of higher commodity prices for commodity importers, while its implications for commodity exporters are more ambiguous.
A lasting change in the nexus could create more difficult challenges for macro-financial stability frameworks, particularly in commodity-importing economies.
Source: BIS.org
IMF-Global Financial Stability Report-Safeguarding Financial Stability amid High Inflation and Geopolitical Risks
April 11, 2023--Financial stability risks have increased rapidly as the resilience of the global financial system has been tested by higher inflation and fragmentation risks.
Chapter 1 analyzes the recent turmoil in the banking sector and the challenges posed by the interaction between tighter monetary and financial conditions and the buildup in vulnerabilities since the global financial crisis.
The emergence of stress in financial markets complicates the task of central banks at a time when inflationary pressures are proving to be more persistent than anticipated. Smaller and riskier emerging markets continue to confront worsening debt sustainability trends.
Chapter 2 examines nonbank financial intermediaries (NBFIs) and the vulnerabilities that can emerge from elevated leverage, liquidity mismatches, and high levels of interconnectedness. Tools to tackle the financial stability consequences of NBFI stress are proposed, underscoring that direct access to central bank liquidity could prove necessary in times of stress, but implementing appropriate guardrails is paramount.
Source: IMF.org
IMF-World Economic Outlook-A Rocky Recovery
April 11, 2023--Overview
The outlook is uncertain again amid financial sector turmoil, high inflation, ongoing effects of Russia's invasion of Ukraine, and three years of COVID
The baseline forecast is for growth to fall from 3.4 percent in 2022 to 2.8 percent in 2023, before settling at 3.0 percent in 2024. Advanced economies are expected to see an especially pronounced growth slowdown, from 2.7 percent in 2022 to 1.3 percent in 2023.
In a plausible alternative scenario with further financial sector stress, global growth declines to about 2.5 percent in 2023 with advanced economy growth falling below 1 percent. Global headline inflation in the baseline is set to fall from 8.7 percent in 2022 to 7.0 percent in 2023 on the back of lower commodity prices but underlying (core) inflation is likely to decline more slowly. Inflation's return to target is unlikely before 2025 in most cases.
The natural rate of interest is important for both monetary and fiscal policy as it is a reference level to gauge the stance of monetary policy and a key determinant of the sustainability of public debt. Chapter 2 aims to study the evolution of the natural rate of interest across several large advanced and emerging market economies. Public debt as a ratio to GDP soared across the world during COVID-19 and is expected to remain elevated.
Source: IMF.org
Interest Rates Likely to Return Toward Pre-Pandemic Levels When Inflation is Tamed
April 10, 2023--How close will depend on the persistence of public debt, on how climate policies are financed and on the extent of deglobalization
Real interest rates have rapidly increased recently as monetary policy has tightened in response to higher inflation. Whether this uptick is temporary or partly reflects structural factors is an important question for policymakers.
Since the mid-1980s, real interest rates at all maturities and across most advanced economies have been steadily declining. Such long-run changes in real rates likely reflect a decline in the natural rate, which is the real interest rate that would keep inflation at target and the economy operating at full employment-neither expansionary nor contractionary.
The natural rate is a reference point for central banks that use it to gauge the stance of monetary policy. It is also important for fiscal policy. Because governments typically pay back debt over decades, the natural rate-the anchor for real rates in the long term-helps determine the cost of borrowing and the sustainability of public debts.
Source: imf.org
IOSCO Commits to Deliver on Sustainability Disclosures and Crypto Exchanges in 2023; publishes Work Program for 2023-2024
April 5, 2023--The Board of the International Organization of Securities Commissions (IOSCO) today published the 2023-2024 Work Program to further its core objectives of protecting investors, maintaining fair, efficient and transparent markets, and addressing systemic risks.
The work program, like the previous edition, covers a two-year horizon and will be reviewed and refreshed, as appropriate, at end-2023 to ensure its ongoing relevance.
Source: IOSCO
Geopolitics and Fragmentation Emerge as Serious Financial Stability Threats
April 5, 2023--Rising tensions could trigger cross-border capital outflows and increased uncertainty that would threaten macro-financial stability
Concerns about global economic and financial fragmentation have intensified in recent years amid rising geopolitical tensions, strained ties between the United States and China, and Russia's invasion of Ukraine.
Financial fragmentation has important implications for global financial stability by affecting cross-border investment, international payment systems, and asset prices. This in turn fuels instability by increasing banks' funding costs, lowering their profitability, and reducing their lending to the private sector.
Effects on cross-border investment
Geopolitical tensions, measured by the divergence in countries’ voting behavior in the United Nations General Assembly, can play a big role in cross-border portfolio and bank allocation, as we write in an analytical chapterof the latest Global Financial Stability Report.
Source: imf.org
WTO-Trade growth to slow to 1.7% in 2023 following 2.7% expansion in 2022
April 5, 2023--Global trade growth in 2023 is still expected to be subpar despite a slight upgrade to GDP projections since last fall, WTO economists said in a new forecast on 5 April. Weighed down by the effects of the war in Ukraine, stubbornly high inflation, tighter monetary policy and financial market uncertainty, the volume of world merchandise trade is expected to grow by 1.7% this year, following 2.7% growth in 2022, a smaller-than-expected increase that was pulled down by a sharp slump in the fourth quarter.
The WTO's trade projections, set out in the new "Global Trade Outlook and Statistics" report, estimate real global GDP growth at market exchange rates of 2.4% for 2023. Projections for both trade and output growth are below the averages for the past 12 years of 2.6% and 2.7% respectively.
Source: World Trade Organization (WTO)
IMF Note-Internet Adoption Trends during COVID-19
March 31, 2023--Summary:
This paper examines the common perception that internet adoption accelerated globally during the COVID-19 pandemic. The data show little evidence of a faster expansion of access to internet (extensive margin) across all country income groups but strong evidence of acceleration in the improvement in the quality of connectivity (intensive margin).
The data also support that, despite a decline in internet prices over the past decade, affordability of digital services remains a concern for low-income developing countries.
Source: imf.gov
Volatile Commodity Prices Reduce Growth and Amplify Swings in Inflation
March 28, 2023--Resurgent volatility in commodity markets will likely pose economic challenges in coming years even as prices decline
Food and energy prices surged to near historic highs in recent years amid the pandemic and the war in Ukraine, which prompted major supply disruptions.
This was accompanied by a sharp rise in the volatility of commodity prices as well.
Worryingly, the up-and-down swings in commodity prices will likely pose economic challenges in coming years. We explore the effects of volatile commodity prices in a new report on food and energy insecurity that was prepared for the Group of Twenty.
Specifically, we examine how economic growth and inflation are affected by volatility in commodity terms of trade-that is, the movement in the prices that a country pays for commodity imports and the prices it receives for commodity exports.
Source: imf.org
