One of the unfortunate consequences of the sub-prime mortgage crisis in the US credit market is the inevitable rise in interest rates. Banks would now be seeking higher margins to protect themselves against default risks.
For now, the crisis seems confined to the sub-prime sector. However, large investment funds from Europe and Asia with significant exposures in US mortgage securities take a beating, with the French investment bank Banque Nationale de Paris leading the way in freezing investments linked to US mortgages.
Is the local equities market affected? Yes, of course. When the US catches the cold, the rest of the world start sneezing, as they say. Considering that the market is heavily foreign-fund dominated, the bearish sentiment would weigh down heavily on stocks across the region, as we have witnessed so far.
The main concern is whether what's happenning in the sub-prime will spill over to other sectors of the US economy. How big is the sub-prime market anyway? How large are investment funds' exposure to these? Will these affect future consumption in the US significantly?
As I understand it, sub-prime is classified as a derivative, and as such, is used for hedging as well. I believe this is fairly recent, so I still think the bigger and resilient economic numbers will ride out the mortgage crisis.
But then again, I'm no expert. I am simply speculating, as I always do :)
For now, the crisis seems confined to the sub-prime sector. However, large investment funds from Europe and Asia with significant exposures in US mortgage securities take a beating, with the French investment bank Banque Nationale de Paris leading the way in freezing investments linked to US mortgages.
Is the local equities market affected? Yes, of course. When the US catches the cold, the rest of the world start sneezing, as they say. Considering that the market is heavily foreign-fund dominated, the bearish sentiment would weigh down heavily on stocks across the region, as we have witnessed so far.
The main concern is whether what's happenning in the sub-prime will spill over to other sectors of the US economy. How big is the sub-prime market anyway? How large are investment funds' exposure to these? Will these affect future consumption in the US significantly?
As I understand it, sub-prime is classified as a derivative, and as such, is used for hedging as well. I believe this is fairly recent, so I still think the bigger and resilient economic numbers will ride out the mortgage crisis.
But then again, I'm no expert. I am simply speculating, as I always do :)
No comments:
Post a Comment