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International Monetory Fund (IMF) in its Global Financial Stability Report, has made cautiously upbeat assessment of global financial markets.
According to IMF, the economic activity had picked up and corporate balance sheets were stronger since its last evaluation in September 2003. Rock-bottom interest rates had played a major part in the increased confidence.
Overall, many market indicators suggest that the current benign financial conditions in mature and emerging markets will likely continue for the time being.
But it said the outlook was not without risks. There would eventually have to be a rise in interest rates and that could increase bond market volatility if investors revised their interest rate outlook. Yet, with inflation down — sustained by rising productivity and slack in the economy — interest rates should stay low for some time, the fund noted.
The IMF warned that global imbalances needed attention, with markets focused on the huge capital flows to the United States spurred by Asian central banks intervening in foreign exchange markets to buy dollars. Financial markets are uneasy about the possibility that Asia might slow or halt its purchases, which would flood the market with dollars and may force US rates higher to fend off a rise in inflation.
Thus, Global financial markets are in a “sweet spot”, but are vulnerable to higher interest rates and shocks from global imbalances like the gaping US current account deficit that could hit the dollar.
.... Click for Standard & Poor's "South and Southeast Asian Corporate Report Card"
.... India becomes Asia’s fastest-growing economy
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