How risk aversion could threaten the global economy

We don't always agree with Morgan Stanley's Stephen Roach - but his opinions are certainly worth listening to. Widespread falls across all asset classes show that investors are rapidly losing their appetite for risk. Is there any reason for this - or does it just prove that bubbles are perfectly capable of bursting under their own weight? And if so, which asset classes are most vulnerable?

There can be no mistaking the power of the risk reduction trade that has just occurred. It is on a par with the big reversals of the past.

What is particularly interesting is that this outbreak of risk aversion has occurred in the absence of a financial crisis and in the absence of a major shift in the underlying fundamentals of the global economy.

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Contributor

Stephen Samuel Roach is an American economist. He serves as a senior fellow at Yale University’s Jackson Institute for Global Affairs and a senior lecturer at the Yale School of Management. He was formerly chairman of Morgan Stanley Asia, and chief economist at Morgan Stanley, the New York City-based investment bank. He is the author of several books including Accidental Conflict: America, China, and the Clash of False Narratives and Unbalanced: The Codependency of America and China.