July's top global risk: 'Risk asset price adjustment,' says IFC

The primary global risk for July has been identified as 'risk asset price adjustment,' signaling a potential correction in the value of assets like stocks and bonds. This assessment comes from the International Finance Center (IFC) in its latest Global Risk Watch report. The report ranks this risk as number one, reflecting heightened market caution.

Following closely behind are sustained high long-term interest rates in developed economies, ranked second, and concerns about a potential bubble in artificial intelligence (AI) investments, which is third. The IFC's risk ranking is based on its proprietary evaluation of global macroeconomic and financial market trends, considering factors such as indicator movements and search frequency. The methodology assesses both the likelihood of occurrence and the potential impact of these risks.

The IFC report observes a shift in market sentiment. While risks related to supply chain disruptions, particularly from the Strait of Hormuz, have somewhat eased due to increased oil production and the partial reopening of the strait, market attention has pivoted. Concerns are now focused on the 'valuation adjustment of risk assets,' driven by high interest rates and the speculative fervor surrounding AI. This has led to volatility in global technology stocks.

Other notable risks highlighted in the report include delays in the normalization of traffic through the Strait of Hormuz (ranked fourth) and the strengthening of the US dollar (ranked fifth). The persistent strength of the dollar, influenced by high U.S. interest rates and the recent record weakness of the Japanese yen, has re-emerged as a significant concern in global financial markets.

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This month's global market caution sees supply-side shocks from the Middle East somewhat easing due to partial allowance of passage through the Strait of Hormuz and increased production by oil-producing countries. However, risks are shifting towards 'valuation adjustment of risk assets' reflecting high interest rates, concerns over an AI investment bubble, and a strong dollar.