Risk evaluation and management has become increasingly more complex as the global economic slowdown progresses, and as such, investors may want to keep an eye on the continuing sovereign deterioration taking place in Europe. While the 27-nation bloc's funding problems are seemingly old news, the reality is that this crisis is far from over. If anything, with each passing day, the risks to investors in both the United States and abroad are still growing.
According to Eurostat, one of the European Union's analytics agencies, the average indebtedness in the eurozone – the area that shares the common currency – rose during the first quarter of 2013, reaching a new high of 92.2 percent. This figure represents a big jump from last year, when the number stood at around 88.2 percent. Greece was in the worst position, with its debt levels rising from 136.5 percent to 160.5 percent in a year's time. Portugal was also in similarly dire straits, with its debt load jumping from 112.3 percent to 127.2 percent.
The challenge for investors involves looking at these numbers and discerning what, if any, impact they will have on their own investments. The truth is that government indebtedness acts as a significant drag on economic growth, a characteristic that is especially acute given the fact that government stimulus has taken on an increasingly more important role in troubled economies worldwide. Any breakdown in these efforts could lead to further socio-economic instability, which poses a direct threat to global markets.
Investors need to find ways to discern and react to risk factors. SmartStops are an innovative set of portfolio management tools that act as a buffer when investments take a turn for the worse. For example, our Market Risk Barometer helps investors see which exchanges are demonstrating volatility so they can adjust and hedge as they see fit.
Categories: Risk Management, Trading & Portfolio Strategies