ESMA has updated its risk assessment to account for the impacts on financial markets of Russia’s invasion of Ukraine and the deteriorating economic environment.
The risk to ESMA’s overall remit remains at the highest level, with political event risk, surging inflation and jumps in market volatility negatively impacting the outlook.
Following the invasion and the resulting sanctions, funds and investors with exposures to Russian assets have faced substantial valuation issues. There has been significant asset repricing, with riskier assets falling in value (particularly equities, corporate bonds and emerging market debt).
ESMA also observes that crypto assets have experienced sharp falls in value, showing the importance of the recently published ESAs joint warning on crypto assets reminding consumers of the highly volatile and speculative nature of many crypto markets. The collapse of Terra illustrates the acuteness of confidence effects in crypto-asset markets and the risks attached to so-called stablecoins in the absence of a sufficiently robust business models and financial engineering.
