[HONG KONG] The world’s top bankers and investors warned of headwinds ranging from systemic risks in the US insurance sector to President Donald Trump’s immigration crackdown, underscoring an array of concerns even as markets steam ahead.
At a global summit in Hong Kong, UBS Group chairman Colm Kelleher starkly cautioned against risks in the US insurance industry, citing weak and complex regulation as private financing booms.
Meanwhile, State Street chief executive officer Ron O’Hanley took aim at US immigration policies, calling them “anti-growth” amid an unprecedented crackdown that has spurred chaos even among skilled foreign workers.
Wall Street heavyweights such as Goldman Sachs Group’s David Solomon and Morgan Stanley’s Ted Pick both highlighted the possibility of a significant equity market sell-off, while also striking a bullish tone on topics such deal-flow and China’s resurgence.
“I think markets tend to be most irrational in their extremes, in the heights of a bull market and in the depth of a bear market, and right now we are very deep into a bull market in many of the major economies around the world,” Citadel founder and CEO Ken Griffin said. “There’s a sense that very little can go wrong.”
The comments were made in a series of wide-ranging discussions at the Hong Kong Monetary Authority’s Global Financial Leaders’ Investment Summit on Tuesday (Nov 4), an annual conference designed to showcase the Chinese city’s heft as a financial centre and wealth hub.
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In the US, equity traders have benefited from volatility sparked by Trump’s tariff wars and uncertainty over an economy downturn. Morgan Stanley’s stock traders posted their best third quarter ever, with revenue jumping 35 per cent to US$4.12 billion.
“We should also welcome the possibility that there would be 10 to 15 per cent draw-downs that are not driven by some sort of macro-cliff effect,” Pick said, adding that it would be “a healthy development.”
Rising stock markets come as private credit – or lending done outside the heavily regulated banking sector – has ballooned over the past decade to a US$1.7 trillion industry.
Some banks are making conscious decisions to collaborate with private credit, to earn fees and tap ever-deeper pools of capital; others say the combinations are risky and could infect the banking sector.
US life insurers have ramped up private debt investments over the past few years, allocating close to one-third of their US$5.6 trillion in assets to the sector last year, up from 22 per cent a decade ago, according to data compiled by research firm CreditSights.
The rapid growth has prompted financial regulators globally to raise alarms, particularly on how it might hit the banking system.
“We’re beginning to see huge rating agency arbitrage in the insurance business,” UBS chairman Kelleher told his fellow financiers in Hong Kong. “In 2007, subprime was all about rating agency arbitrage. What you see now is a massive growth in small rating agencies ticking the box for compliance of investment,” he said.
The event in Hong Kong was held as China seeks to woo Wall Street’s largest financial institutions after a tumultuous few years. The fourth annual gathering comes as Hong Hong’s markets are surging and Chinese companies are flocking to list with stock sales running at a four-year high.
Morgan Stanley’s Pick said the market is again becoming a destination of capital with momentum returning.
“When the animal spirits are kicking in and when there is clear advantage being struck by winning companies, they want alpha,” Pick said. “They want company-specific allocations – that’s when the new-issue environment becomes so important.” BLOOMBERG
