Australia's financial regulator has warned that turmoil in the global bond market and growing concerns about artificial intelligence are threatening to weaken financial market liquidity. "Whatever data point you look at, we're in a heightened strategic risk environment," said Simone Constant, a commissioner with the Australian Securities and Investments Commission, the country's corporate and markets watchdog.
Constant pointed to a range of risks facing markets, including "the capex super cycle and AI being the disruptor and also the source of capital," as well as "bond market movements" and uneven valuations across asset classes. Speaking on the sidelines of the AFR Super and Wealth Summit in Melbourne, she said the regulator's efforts over the past two years to better understand private markets are timely, given the potential for weaker liquidity during periods of market stress. Investors, she said, must have a strong grasp of the liquidity profile of assets such as private debt and ensure "valuations are real and realizable," since the ability to offload assets can quickly diminish in such periods.
The concerns come as several Australian private credit funds have stopped investors from accessing some funds. Sydney developer Bathla Group fell into insolvency in August, owing around A$3.4 billion, mostly to private credit funds. Large global banks are also becoming more selective in lending to Australian private debt funds, raising the threat of a potential funding squeeze. Across global markets, the AI trade is faltering as investors scrutinize the billions of dollars being spent. That has already led to the collapsed listing this month of Australian data center firm Firmus Grid Ltd, a development that hit peers. Meanwhile, persistent inflation across developed markets has weakened sovereign bonds, driving spikes in yields in the US and elsewhere.
Constant stressed that the worries do not mean "we are calling this a financial crisis or even necessarily a stress event," but rather a need to "accept that accelerating pace of change."
Source: Bloomberg Markets · Summarized by HeadlinesBriefing