by Kevin Chen
Every year Montreal Exchange hosts a derivative conference in late November. This year was the 17th annual meeting. I was invited to join the macro-economic panel to discuss. Other panelists came from a world leading hedge fund, a major consulting firm, and a major Canadian pension research firm. Obviously, there are many macro issues to be discussed. My speech was about the main challenges and opportunities in 2017.
On the challenges side, the number one issue is the global liquidity situation. Since the 2008 financial crisis, central banks from U.S., Europe, and Asia have been engaged in massive amount of quantitative easing. The trillions of dollar of liquidity have been fueling a global financial market boom. Assets in equities, bonds, and to a lesser extent, commodities, benefited from this injection. Since the economy has been slowly recovering, the monetary policy needs to be normalized. It will be a tough job for investors to get used to less liquidity going forward.
A related issue is leverage. Because of low interest rate, the chasing of yield caused substantial leverage build up. One can see the real estate market in China as a clear example. When the leverage is at close to its up limit, there is likely to be hindrance to further growth. In fact, the world economic growth is expected to be slow. How will investors navigate a world with less growth supported by less leverage?
The biggest elephant in the room was clearly the recent U.S. Presidential Election and its implication. One may be tempted to say that this could create new opportunities for investors. Since the core economic policy message of President-Elect Trump has been tax cuts and less regulation, the private sector is likely to generate more profits for the shareholders and banks are likely to be less restricted.
The conference was coincident with the news of crude oil output cut by the OPEC. It resulted in a 10% rally in one of the crude oil price. The macro panel did discuss the expected rise of commodities price in 2017. In addition, the expected large infrastructure investment in the U.S. may indicate an inflation pick up is coming in 2017.
Apart from the Macro Panel, CADC had keynote speakers covering the Canadian Economy and the Canadian Financial Market Development. Canadian pension fund managers and exchange representatives debated about the derivative usage in Canada. Other panels include compliance and regulation, attended by Federal Reserve Bank of Chicago, Montreal Exchange and prominent law firms; and financial technology panel, covered topics like blockchain and other electronic payment system. Bloomberg Financial gave an excellent demonstration about the option pricing tools. The location of the conference was at the Château Frontenac, a beautiful historical grand hotel in Quebec City, Quebec, Canada.
Kevin Chen teaches Private Sector courses in the MSGA program at NYU SPS’s Center for Global Affairs.