Cybersecurity, trade tensions rank as top threats to markets in 2019, survey finds

Trader Talk

The No. 1 risk to markets in 2019? It will surprise you.

The company tasked with clearing and settlement for the financial markets is warning that “pockets of weakness” are starting to emerge across the financial system.

Surprisingly, the biggest risk to markets going into the new year is the threat of a cybersecurity attack, according to a new survey of risk managers and nonrisk professionals by the Depository Trust and Clearing Corp., which provides clearing and settlement services to the financial markets.

Cybersecurity risk was ranked as the top risk by 37 percent of respondents, and 69 percent ranked it in the top five. Cyber risk has consistently been cited as the top risk since the Depository launched its Systemic Risk Barometer Survey in 2013.

The survey, released Tuesday, is based on 145 responses from a variety of industry experts, mostly in risk management and operations.

Geopolitical risk and trade tensions, including risks in areas such as the Middle East, China and in emerging markets, was the second most-cited risk (55 percent of respondents).

In a surprise, the British withdrawal from the European Union has emerged as a major concern, with 49 percent listing it in the Top 5, up from 38 percent last year.

The increase in Brexit concerns was the most significant year-over-year change in the findings.

Sixty-five percent of European respondents cited Brexit as a top cause, but even 44 percent of North American respondents now cite it as an issue.

“We see firms actioning their plans to deal with Brexit without a clear understanding of what a post-Brexit Europe will actually look like,” said Andrew Douglas, the Depository’s director of government relations for EMEA/Asia.

Excessive global debt was seen as a top risk for the first time, cited by 28 percent of respondents. “The Fed’s monetary policy tightening campaign may have a pronounced effect on countries with debt that is benchmarked against or denominated in U.S. dollars,” said Michael Leibrock, chief systemic risk officer for the Depository.

Impact of new regulations round out the top, cited by 26 percent of respondents, but this is down significantly from last year, when it was cited by 45 percent of respondents.

Perhaps importantly, an Asian economic slowdown (cited by 26 percent as a major concern) was mentioned more frequently than a U.S. economic slowdown (22 percent), a clear sign that the U.S. economy was not perceived to be floating in a vacuum apart from the rest of the world.

“The broad perspective of these survey results shows that while economic indicators continue to appear strong, pockets of weakness are starting to appear across numerous components of the financial system as geographic flash points continue to materialize and intensify,” Leibrock said.

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