TRV Risk Monitor ESMA Report on Trends, Risks and Vulnerabilities, No. 2, 2023

Risk monitoring #TRV |

Financial markets are adapting to the new economic environment of durably higher inflation and interest rates, however risks remain high in ESMA’s remit. Markets are set to remain very sensitive to potential deteriorations in economic fundamentals or risks in the financial sector.

🧭 Securities markets: Equity markets rose in 1H23, even though the market stress related to US banks led to increased volatility and bid-ask spreads in March and April.

🧭 Asset management: The EU fund sector partly recovered after the historical decline experienced in 2022, primarily due to valuation effects. Fund risks remain high due to prevailing credit, valuation, liquidity and interest rate risks, especially for funds combining several vulnerabilities (i.e. real estate fund sector).

🧭 Consumers: Investor sentiment remained negative amid lingering uncertainty and weak expectations on long-term developments.

🧭 #SustainableFinanceEU: The EU market for ESG products and sustainable investments has continued to grow at a robust pace. The demand for funds with a sustainable investment objective remained strong.

🧭 #CryptoAssets and financial innovation: Crypto-asset valuations rebounded in early 1H23 but remained far below their historical peak. Financial markets have started exploring potential implications of #AI.