“The outcome of the UK referendum has changed our risk outlook for the current and next quarters,” Esma wrote in the document. Although the regulator said that “EU financial market infrastructures proved resilient” in the wake of the Brexit vote, it noted “a deteriorating liquidity risk outlook”, citing increased fund outflows and the suspension of redemptions in a number of UK property funds.
Even though Esma left its risk assessment unchanged compared to the start of the year, it sees all the risks to the downside. Of the five factors it considers in its analysis, Esma believes only the outlook for credit and operational has not deteriorated.
“But market, liquidity and contagion risks may increase going forward, as political and event risks have intensified, and the macroeconomic environment may deteriorate,” the organisation concludes gloomily.
So little wonder the risk premium of European equities over US equities now is at its highest level since 2012, when the euro crisis rocked the continent. According to calculcations by NN Investment Partners, the Dutch asset manager, the eurozone equity risk premium currently stands at 6.5%.