Standard Chartered: Crisis has made firms over-sensitive to emerging risks

 
Tim Wallace
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Investors have been scarred by the credit crunch, and are now sensitive even to small risks
Investors and businesses have over-reacted to the financial crisis, placing too much weight on emerging risks and not enough on economic opportunities, analysts at Standard Chartered said yesterday.

Firms could be missing out because they see all possible risks as having enormous potential, rather than addressing them even-handedly.

“While there are clearly risks today, businesses and investors may be too focused on potential dangers,” said the bank’s Risks and Opportunities 2015 report. “This partly reflects disaster magnification – a human behavioural quirk – the opposite of the disaster myopia, prevalent in early 2007.”

The analysts give the example of deflation, which they see as a potential small drag on growth, rather than an all-out disaster.

“Concern about deflation is exaggerated; it is a long-term drag rather than a shock,” said the report. “An inflation rate of, for example, minus 0.1 per cent is not significantly different from [plus] 0.1 per cent. People do not cut back on spending just because the average inflation rate is slightly negative.”

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