Last year SSGA’s Investment Solutions Group published a list of its “Top 10 Black Swans for 2015.” It hedged its predictions by reminding readers that predicting tail risk is, by nature, “a nearly impossible exercise,” yet at least 4 of the 10 predictions came true.
This year SSGA pegged its predictions to the Lunar New Year, “given the outsized role China appears poised to play in downside risk this year”.
It has also changed the swans’ colour, from black (meaning exceptionally rare and unknown) to grey (unlikely, but possible and potentially foreseeable). “These forecasts are not our base case scenarios, and the events that continue to rock markets this year may not exactly be there. But like last year, we’re willing to bet we’re getting warm,” it said.
SSGA’s “Top 10 Grey Swans for 2016” are:
· A one-off Chinese Renminbi maxi-devaluation
· Emerging market corporate debt crisis
· A reversal of European integration
· A modest US recession in 2016
· Damaging consequences of low and negative interest rates on the financial sector
· An oil squeeze
· Domestic unrest in oil-exporting countries
· Escalating Sunni/Shia conflict
· Cascading sovereign wealth funds and FX reserves
· Russia makes headlines for all the wrong reasons
Source: State Street Global Advisors
