Global financial reform a key risk

The lack of coordination of global financial markets reform is a key concern, according to Global Value Investors’ senior equities analyst Matthew Hegarty.

Global Value Investors is one of the international managers that are part of boutique fund management incubation firm Treasury Group. Speaking at a Treasury Group luncheon in Sydney yesterday, Hegarty said while he felt the global financial crisis was over and saw the recent market activity over the last few months as a healthy correction in asset markets, he was concerned about the run-on effects of global regulatory policies that he saw as anti-market, anti-growth and ill-timed.

Hegarty said market regulatory reform was a key risk to markets.

“There is certainly a lot of loose [reform] and lack of coordination globally, and there’s potential risk of a very unlevel and uneven playing field emerging in the global regulatory landscape,” he said.

He felt that local regulators were going about their own reform agenda without thinking about the far-reaching consequences. He said the US, for example, was adopting broad sweeping financial regulatory reform that would have wide-ranging consequences for the sector.

“Certainly now the status of global funding markets and banks that rely on wholesale funding markets is going to be a key thing going forward, producing a lot of pressure on bank net interest margins,” he said. “The Australian banks are going to be facing significant headwinds going forward as well. A percentage of their debt issuance as a percentage of their total assets places them among some of the highest banks in the world in terms of their reliance for offshore funding, and certainly is a business banking model that’s under the most pressure globally.”

Nick Langley of RARE Infrastructure was another fund manager to speak at the lunch, and he was also concerned about Government action.

“I think we’ve had quite an incredible and far-reaching series of reactions from our Governments globally, and those reactions will have consequences that we don’t know yet, and we will see those flow through over the coming years,” he said.

Langley said RARE recently conducted a bear case on investments in the Iberian Peninsula, which revealed negative gross domestic product (GDP) over the next three years, zero GDP for the five years after that, and a further three to five years before the region got back to growth.

“There are certainly some draconian views that we need to take into account,” he said, adding that they formed part of RARE’s assessments.