The geopolitical situation and real estate represent a risk for financial markets in 2024

The European Financial Markets Authority (Esma) noted that the markets it supervises "remained remarkably resilient in the second half of 2023, despite the accumulation of risks", in the preamble to its first 2024 report on trends, risks and vulnerability of the markets published on Wednesday.

However, “the risks remain at a high or very high level,” she warns.

The risk of market correction remains at a "high" level, in "a context of fragile liquidity", according to the regulator, which emphasizes "exposure to real estate risks".

This lack of liquidity, which corresponds to the ease with which investors can exchange assets, makes markets more subject to strong variations in the event of external shocks, particularly geopolitical, details the report.

The real estate sector is being penalized due to rising interest rates. Prices have so far fallen back on commercial real estate and only marginally on residential real estate, but the ratings of real estate funds have only fallen slightly, points out Esma.

The risks come from "a combination of vulnerabilities", including latent losses or liquidity problems in the case of large withdrawals from funds.

Another consequence of high rates is that of increased payment defaults by companies, in particular because “more and more issuers will have to refinance in 2024 and 2025” underlines Esma.

The institution regrets "a lack of visibility" on this issue, due to the rise of private credit: non-bank financing which is not carried out on financial markets, a less transparent solution.