Squeeze in liquidity 
warning for investors

INVESTORS should be prepared for a surprise squeeze on liquidity in a number of markets, according to research from Coutts.

Norman Villamin, chief investment officer for Europe at Coutts, said that gold’s “breathtaking declines” in April, and a recent slide in Japanese equities provides more evidence that liquidity in seemingly large markets isn’t as stable as many might have assumed.

He added: “As noted in our previous post on gold, we think this unstable liquidity dynamic (a sudden absence of buyers) is a major risk in a global financial system characterised by aggressive and open-ended QE (quantitative easing) in two of the world’s three biggest economies. Policymakers have encouraged risk-taking to the extent that few dare to stand on the other side of the trade.”

Mr Villamin said he didn’t expect to see a “tapering” of QE programmes in the near term.

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