The next economic crisis will be triggered by geopolitical tensions rather than problems in company balance sheets, says Fidelity International.
Speaking in Sydney on Wednesday, Fidelity International head of Australian equities Paul Taylor stated that previous major economic crises – such as the Asian financial crisis of 1997, the Russian bond default of 1998, the burst of the dot-com bubble in 2001, and the GFC – were unlikely to reoccur.
“In the last 21 years, no crisis has come twice,” Mr Taylor said. Quoting author Mark Twain, he added: “history doesn’t repeat, but it rhymes”.
“Now I really like that as a market statement, because I think that's quite accurate. So you get rhythms in the market, but it never typically completely repeats itself,” he said.
The next crisis would be different from previous crises – but they could share similarities, “or echoes of similarities”.
“Sometimes things can look bad, but then just stay that way for a long period of time and then there’s just some catalyst at that point.
“The housing markets are overvalued – that’s an issue. But you still need a catalyst to do something, and I just can’t see a catalyst.”
The trigger for the next crisis could come from a completely unexpected direction, Mr Taylor added.
He pointed to geopolitical and trade tensions that had been playing out between the US and China in the last few months which had shaken markets recently.
“Maybe crisis comes in that form rather than a market excess form. A lot of the big issues around the world at the moment are the movement of people around the world,” he said.
Furthermore, as China became larger and more powerful, the nation-state’s desire to be “represented in the world at that level” was creating “frictions” with other countries.
“Maybe it's those sorts of topics rather than a balance sheet issue that causes the next crisis.”
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