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2012 vision: Resolving the unresolved

Thursday 29 December 2011 – by Robert Park

The key themes in 2012 will be the growing need for real-time risk measures, a focus on managing portfolio risk and resolving the uncertainty around derivatives regulations, according to financial analytics firm Fincad’s president and ceo Robert Park.

Never make predictions, especially about the future, someone once said. But here is my take on 2012 anyway.

Looking back on 2011 we saw turmoil and drama unfold in the financial industry which made it a great time to be a financial journalist. For the next year, the journalists will continue to have good material since the issues and events of 2011 are continuing as 2012 stories.

For 2012, there are three macro issues and three industry specific ones issues that will be big stories.

The first macro level issue is the eurozone debt and liquidity crisis. The 9 December eurozone summit did not solve the current situation, but might help prevent another crisis from happening in the future. We still have no adequate solution to the liquidity problems that banks and the eurozone governments are suffering from.

Even the solvent countries are going to have trouble in the weeks and months ahead refinancing their maturing debt. With the significant austerity programmes being put in place, without sufficient monetary action by the ECB, it is a recipe for a recession and liquidity crisis.

The second macro issue that will affect 2012 is the US Congress’s failure to come to terms with the country’s budget deficit. While there have been recent signs of economic growth in the US, this ongoing federal deficit problem puts paid to the concept of risk free interest rates because the US still has its own sovereign debt issues.

The third macro issue is China. The slowing economic activity in Europe is having an impact on Chinese exports. The credit squeeze on small- and medium-sized Chinese businesses, which are the main engine of growth, is starting to have an effect.

Chinese banks are riddled with bad debts from municipalities and regional governments. With dismal economic growth globally and a Chinese real estate bubble on the verge of bursting there could be a hard landing in China.

These three macro issues provide a framework for what happens at the industry level. We see three main issues preoccupying our clients in 2012.

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