Strategy Focus - Financial market concerns following the collapse of the US bank SVB

The bankruptcy of the American bank Silicon Valley Bank (SVB) has caused significant turbulence on the financial markets since last week. While the bank's difficulties seem to be largely due to its highly specialised nature and poor management of its financial risk, it nevertheless represents a new warning to the risks posed by the sharp interest rate hikes of recent months.

The rapid and significant reaction of the US authorities suggests that the risks of direct contagion will remain limited. However, it is important to monitor segments of the venture capital industry that are sensitive to declining liquidity. Small U.S. banks remain on high alert, but the authorities are taking the risk seriously and should help avoid a more systemic crisis. U.S. large banks as well as European banks have very diversified business models and much more controlled management of their financial risks. Their capital and liquidity levels reassure of their ability to manage rising interest rates.

This SVB failure, however, raises the question of the capacity of the economies and the current financial system to absorb the very rapid rise in interest rates. Central banks will be vigilant in their future monetary policy decisions, in a context where inflation is still slow to fall significantly.

At this stage, we maintain our balanced strategic positioning between equities and bonds. Indeed, our highly diversified positioning protect our exposure, at least partially, from the decline in equity markets through the rise in bond markets. In addition, our regional differentiation remains favourable in the context of current tensions, both our overexposure to Europe in terms of equity markets and to US government bond markets and well-rated corporate debt. However, we remain attentive in order to be responsive to developments in the situation.

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