Increase in market volatility suggest investors are as bad as slow-moving sovereign rating agencies at detecting early signs of trouble
Recent market volatility in emerging and developed economies is showing once again how badly ratings agencies and investors can err in assessing countries’ economic and financial vulnerabilities. Ratings agencies wait too long to spot risks and downgrade countries, while investors behave like herds, often ignoring the buildup of risk for too long, before shifting gears abruptly and causing exaggerated market swings.
Given the nature of market turmoil, an early warning system for financial tsunamis may be difficult to create; but the world needs one today more than ever. Few people foresaw the sub-prime crisis of 2008, the risk of default in the eurozone, or the current turbulence in financial markets worldwide. Fingers have been pointed at politicians, banks, and supranational institutions. But ratings agencies and analysts who misjudged the repayment ability of debtors – including governments – have got off too lightly.
Source: The Guardian Circular Economy RSS