From Inflation to Systemic Credit Events: How Investor Sentiment is Shifting

As of March 2023, investors are more worried about a systemic credit event rather than inflation as the key risk to markets. This shift in concern highlights the fragile state of the global economy and the uncertainty around the future.

The fear of a systemic credit event replacing inflation as the key risk to markets is a reflection of the ongoing instability in the financial system. A systemic credit event occurs when a disruption in the financial system causes a widespread default of debt obligations, leading to a ripple effect throughout the economy. This can lead to a collapse of the financial system and trigger an economic recession.

The shift in investor sentiment is a cause for concern, as the market is becoming increasingly pessimistic about the outlook for the global economy. The fear of stagflation, a phenomenon where inflation and stagnation occur simultaneously, has also been rising. According to the latest FMS investor survey, expectations for stagflation have remained above 80% for 10 months in a row. Investors have never held such strong conviction about the economic outlook.

The continued uncertainty surrounding the global economy has led to a significant shift in investor behavior. Many investors are now focusing on more defensive investment strategies, such as investing in gold and other safe-haven assets. Others are investing in stocks that are more resilient to economic downturns, such as healthcare and technology.

The increasing pessimism among investors highlights the need for governments and central banks to take proactive measures to stabilize the global economy. This may include fiscal and monetary policy interventions, such as stimulus packages, interest rate cuts, and quantitative easing measures. These policies can help to boost economic activity and restore investor confidence in the markets.

In conclusion, the shift in investor sentiment from stubborn inflation to a systemic credit event is a worrying trend that highlights the fragility of the global economy. The fear of stagflation has also been rising, further exacerbating investor concerns. It is important for governments and central banks to take proactive measures to stabilize the economy and restore investor confidence in the markets.