The world markets have been in a lower risk zone for the past decade or so and while digital currency adoption will increase, systems like blockchain won’t see widespread adoption, according to Professor Robert Engle of the New York University.Engle, awarded the economics Nobel prize winner in 2003, for his work on econometrics, which uses mathematical and statistical analysis to forecast trends, was talking to journalists at the R H Patil Memorial Lecture by NSE. For example, his work is used as stress test for banks in the developed markets, with publicly available data. "The world has been in a low volatility state for a decade," he said. There have been patches such as 9/11, Brexit, Trump election etc. which have impacted the markets but by and large volatility has been low, he said.

India, not a high risk zone

Engle believes that India, despite the increase in non performing loans and stressed assets, is not in high risk zone. “From the data I think India’s total systemic risk is not particularly high -it is in the middle,” he said. He stated that measures taken by the government such as allowing more streamlined bankruptcy, non performing loans identification are steps in the right direction.

While India does not have a near term financial crisis, he said that ever greening of loans could result in problems later.

Chinese economy slowdown

So, in the global financial system what should we be concerned about? China is going through some pain and this is evident from its economy slowing down. “Converting from export to consumption-based economy is a complicated process and this complication is also due to trade war tensions, the situation in Hong Kong" he said.

Even though Chinese capital markets are very under capitalised (as a vast majority of them are state owned), the problem has not reached an extreme situation. However, Engle is of the opinion that the stressed assets, legacy loans to state owned enterprises and municipal governments will play out slowly and would eventually lead to problems. This is due to the fact that these loans don't get reissued.

This will slow down China but policy makers wont let it happen and they will feed economy with debt, he stated.

When asked about newer forms of currencies such as crypto currencies, Engel pointed out that while digital payment will gather pace over time, he was not convinced whether blockchain and other currencies not regulated by government authorities will become mainstream. He also said that information from social media and climate change does move the markets.

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