The views expressed in this presentation are the views of the author and do not necessarily

reflect the views or policies of the Asian Development Bank Institute (ADBI), the Asian
Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI
does not guarantee the accuracy of the data included in this paper and accepts no responsibility
for any consequences of their use. Terminology used may not necessarily be consistent with
ADB official terms.

Global Financial
Market Updates

Cyn-Young Park

1
 Global financial conditions remain
broadly favorable, but…
◼ Trade tensions continue to make headlines;
geopolitical anxiety drives global markets
◼ Equity and other risky asset prices have
moved higher but remain range-bound amid
looming trade concerns
◼ Major central banks have turned dovish; can
Central Banks continue to keep markets
afloat?
2
 Trade uncertainty drives market volatility
Selected Equity Indices Global Trade Volume Growth and Implied
(January 2, 2017 = 100) S&P Volatility
PRC-US PRC-US
180 trade additional 7 30
Brexit formal US tariffs on solar PRC-US trade
tension: tariff hikes
160 announcement three 6 panels, washing tension temporary
machine, steel and truce 25
rounds of 5 aluminum
tariff hikes PRC-US trade
140 4 additional tariff
hikes
20
120 3
2 15

%
100
1
80 0 10
US tariffs on PRC-US The UK Brexit formal PRC-US three
solar panels US tariffs on trade tension left the -1 annoucement rounds of tariff
5
60 and washing steel and temporary EU hikes
machine aluminum truce
-2
40 -3 0
Jul 2017
Oct 2017

Jul 2018
Oct 2018

Jul 2019
Oct 2019
Jan 2017

Jan 2018

Jan 2019

Jan 2020
Apr 2017

Apr 2018

Apr 2019

Nov-19
Oct-17

Oct-18

Oct-19
Apr-17
Jul-17

Apr-18
Jul-18

Apr-19
Jul-19
Jan-17

Jan-18

Jan-19
World Emerging Asia World Trade Volume Growth (LHS)

United States (S&P 500) EU (EUROSTOXX 50) Implied Volatility (RHS)

EU = European Union, PRC = People’s Republic of China, UK = United Kingdom, PRC = People’s Republic of China, US = United States.
US = United States. Note: Implied S&P Volatility based on VIX.
Notes: World index is based on MSCI World Index, and Emerging Asia index is based Sources: ADB calculation using data from Chicago Board Options Exchange, CPB
on MSCI Emerging Asia Index. Netherlands Bureau for Economic Policy Analysis. World Trade Monitor.
Source: ADB calculation using data from Bloomberg. https://www.cpb.nl/en/data (both accessed February 2020).

3
 Global growth outlook dims on trade
disputes
Consumer and Business Confidence Global Growth (%)
Indexes October 2019
35 Forecast
30
25 4.0
20 3.8
15 3.5
3.6 3.4
10 3.5 3.4
5 3.0 3.0
0 3.3
-5 2.5 2.9
-10
-15
-20 2.0
-25
-30 1.5
May 2016

May 2017

May 2018

May 2019
Sep 2016

Sep 2017

Sep 2018

Sep 2019
Jan 2016

Jan 2017

Jan 2018

Jan 2019

Jan 2020

1.0

0.5
EU Consumer Confidence EU Business Confidence
0.0
US Consumer Confidence US Business Confidence 2015 2016 2017 2018 2019f 2020f
EU = European Union, US = United States. f = forecast.
Consumer Confidence is based on the Sentix Indicator Private Expectation and Business Sources: ADB calculation using data from IMF. World Economic Outlook October 2019
Confidence is based on Sentix Indicator Institution Expectation. database; and IMF World Economic Outlook January 2020 database.
Source: ADB calculation using data from CEIC. (both accessed February 2020).

4
 Stimulus to sustain recovery momentum
Fiscal Balance of Central Governments Policy Rates (%)
(% of GDP)
7.0
3.0
6.0
2016 2018
2.0
5.0
1.0 4.0
3.0
0.0
2.0
-1.0
1.0
-2.0 0.0

-3.0 -1.0

Jul 2016

Jul 2017

Jul 2018

Jul 2019
Jan 2016

Jan 2017

Jan 2018

Jan 2019

Jan 2020
Oct 2016

Oct 2017

Oct 2018

Oct 2019
Apr 2016

Apr 2017

Apr 2018

Apr 2019
-4.0

-5.0
AUS FRA GER ITA JPN KOR PRC USA EUA Indonesia Euro Area
Japan United States
AUS = Australia, EUA = Euro Area, FRA = France, ITA = Italy, JPN = Japan, KOR =
Republic of Korea, PRC = People’s Republic of China, USA = United States. Note: United States policy rate based on upper target limit of the Federal Reserve Board
Source: ADB calculation using data from CEIC. Source: ADB calculation using data from CEIC and Haver Analytics.

5
 Risks remain tilted to the downside
◼ Extended monetary policy accommodation
leads to a buildup in financial vulnerabilities
 Vulnerabilitiesin high-yield credit market
 More negative-yielding debt sends global
investors on renewed hunt for yield in US credit
 Capital flows and reversals in EMEs

◼ PRC’s economic slowdown casts further

shadow

6
 Yield curves inverted, while negative
yielding debts surge
Global supply of bonds with negative yields
Yield Spreads of Government Bonds (%) ($ trillion)
2.5
18
2 16
1.5 14

1 12

0.5 10

0 8
6
-0.5
4
-1
May 2016

May 2017

May 2018

May 2019
Sep 2016

Sep 2017

Sep 2018

Sep 2019
Jan 2016

Jan 2017

Jan 2018

Jan 2019

Jan 2020

2
0

Jul 2017

Nov 2017

Jul 2018

Nov 2018

Jul 2019

Nov 2019
May 2017

May 2018

May 2019
Sep 2017

Sep 2018

Sep 2019
Jan 2017
Mar 2017

Jan 2018
Mar 2018

Jan 2019
Mar 2019

Jan 2020
Germany Japan
United Kingdom United States
Note: Spread refers to the difference between the generic 10-year government bond
and the generic 3-month government bond. Note: Based on Bloomberg Barclays Global Aggregate Negative-Yielding Debt Index
Source: ADB calculation using data from Bloomberg. Source: ADB calculation using data from Bloomberg.

7
 Delayed exits risk overheating
Leveraged Loans ($ trillion) Capital Inflows and Credit Growth---EM Asia
1.6 excluding the People’s Republic of China
12 30
1.4
10
25

%, year-on-year change
1.2 8
6 20
1.0
4 15

% of GDP
US Europe 2
0.8 10
0
0.6 -2 5
-4 0
0.4
-6
-5
0.2 -8
-10 -10
0.0

Mar 2006

Sep 2007

Mar 2009

Sep 2010

Mar 2012

Sep 2013

Mar 2015

Sep 2016

Mar 2018

Jun-19
Mar 2003

Sep 2004

Mar 2006

Sep 2007

Mar 2009

Sep 2010

Mar 2012

Sep 2013

Mar 2015

Sep 2016

Mar 2018

Sep 2019

Capital Inflows (left) Credit Growth (right)

Source: Bank for International Settlements. 2019. BIS Quarterly Review. EM = Emerging Asia, PRC = People’s Republic of China.
International banking and financial market developments. September. Sources: ADB calculation using data from CEIC and Haver Analytics; and Finger and
Murphy (2019).

8
 Asian exports heavily influenced by global
demand
Growth in Exports to US by Source Correlation between growth in Emerging East
% growth (y-o-y) 3-month MA Asia's intraregional exports and US non-oil imports
25
80 1.0
20 0.87 0.9
60
15 0.8
10 40 0.72 0.7
5 0.6
20
0 0.5
0 0.4
-5
-10 -20 0.3

-15 0.2
-40
-20 0.1
-60 0.0
-25

Apr-01
Jul-02

Apr-06
Jul-07

Apr-11
Jul-12

Apr-16
Jul-17
Oct-03

Oct-08

Oct-13

Oct-18
Jan-00

Jan-05

Jan-10

Jan-15

Oct-19
-30
Jan-16 Sep-16 May-17 Jan-18 Sep-18 May-19 Dec-19
Emerging East Asia US non-oil imports
Korea, Republic of PRC ASEAN4 Japan
Correlation (RHS)
ASEAN = Association of Southeast Asian Nations, EU = European Union, MA = Moving Notes: Non-oil imports computed by subtracting crude oil import from the total import of goods.
Average, PRC = People's Rep. of China. Emerging East Asia includes ASEAN 4 (Indonesia, Malaysia, the Philippines, Thailand), NIE4
Notes: (i) Exports based on Imports, CIF to the United States. (ii) ASEAN4 includes (Hong Kong, China; the Republic of Korea; Singapore, Taipei,China), and the People's Republic
Indonesia, Malaysia, the Philippines, and Thailand. of China.
Source: CEIC. Source: ADB calculation using data from International Monetary Fund. Direction of Trade
Statistics; and US Census Bureau.

9
 Key messages
◼ Trade wars, geopolitical risks, sputtering global
growth, and much less policy room point to poor
market performance and high volatility in 2020
◼ Stimulus must remain until recovery firms up; but
need to shift gears to fiscal measures
◼ Growing negative yielding debts need to be
carefully monitored
◼ International spillovers and spillbacks make policy
cooperation essential to avert future crises

10
 Thank you

Cyn-Young Park
Asian Development Bank
www.adb.org

11