JP Morgan: The next financial crisis is just two years away

  • Sep 14, 2018 AEST
  • Team Kalkine
JP Morgan: The next financial crisis is just two years away

Investment banking company JP Morgan Chase breaks the news as to when the next financial crisis will hit and how bad is it going to be. However, the question of how long remained unanswered.

JP Morgan says the next financial crisis will strike in 2020. But this time it is estimated to be less igniting than a major financial crash a decade ago.

The strategists at the bank have designed a model aimed at measuring the timing and severity of the crisis. The outcome of the model calculated is said to be based on the degree of leverage, the length of the economic expansion, asset-price valuations, the potential duration of the next recession, the level of deregulation and financial innovation before the crisis. Through a model, banker warned the investors on following peak-to-trough performance estimates: 

A decline of about 20% in US stocks

A 35% tumble in energy prices and 29% fall in base metals

A 27.9% point widening in spreads on emerging-nation government debts.

A 48% slump in emerging-market stocks, and a 14.4% slide in emerging currencies.

JPMorgan strategists John Normand and Federico Manicardi wrote about the liquidity worries during recession. "They would nudge them all at least to their historical norms due to the wildcard from structurally less-liquid markets."

JPMorgan's Marko Kolanovic writes about "Great Liquidity Crisis” in the Monday note. He says a downturn in actively managed investing has escalated the danger of market disruptions primarily due to rise of index funds, exchange-traded funds and quantitative-based trading strategies.

The banker estimated that actively managed accounts makes up to around one-third of equity assets under management, with active single-name trading just account to nearly 10% of trading volume.

The notes highlight the one silver lining that is the recent rout in emerging markets. It means assets in developing countries have cheapened this year which could potentially help limit the peak-to-trough declines during recession along with offsetting a buildup of leverage.

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