Global Finance and Markets – Where are the Vulnerabilities


Situation on 30-th september, 2016

Resistance to shocks, or the so-called RtS rating, measures the ability to withstand the turbulence of markets, corporations, or systems thereof. The table below reports the RtS ratings of a series of markets, as well as market segments, such as pharma, automotive, O&G, etc. It is interesting to note that systems of indices, such as ‘S&P + DJ + NASDAQ’, or the European ‘MIB + FTSE + CAC + DAX + SMI’, yield RtS ratings far below those of the single indices. This confirms, once again, that a systemic broad-scale analysis yields results that are generally more realistic than the analysis of a single index. The Global Financial Complexity Index – a meta-index of all the World’s major indices – is today at 59%, a low value that points to pronounced fragility of the entire system.


While the  ‘S&P + DJ + NASDAQ’, and ‘MIB + FTSE + CAC + DAX + SMI’ systems have RtS ratings of 50% and 48% respectively, the combined system of all these indices is at a slightly lower 47%. It is worth noting that the RtS rating of the  economy of the system of 27 EU member states clocks in a 49%, very much in line with that of the ‘MIB + FTSE + CAC + DAX + SMI’ system of indices. It appears that finance and the real economy are (momentarily?) in phase, at least in terms of resilience.

The bottom line: a narrow analysis generally yields less relevant and overly optimistic results. A systemic analysis will, in general, expose fragilities that are not immediately apparent hence is of immense importance.

The chart corresponding to the above table is shown below.


The indices with the highest RtS rating are (today, September 30-th, 2016): SSMI, DJI, HSI, those with the lowest: CAC, MIB, FTSE.

NB. High Resistance-to-Shocks doesn’t necessarily imply high performance but, instead, points to high stability in the face of turbulence.


Watch out for our next updates.


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