With market volatility at pre-crisis lows, concerns are rising that complacency may herald a selloff, but some analysts believe fundamentals are driving the decline in risk.
“Quite a lot has recently happened in terms of geopolitical risks, oil prices etc. and yet volatility has not budged,” Klaus Baader, chief economist for Asia Pacific at Societe Generale, told CNBC. “It’s not just equity volatility. It’s bond volatility; it’s FX volatility. It’s all massively low.”
But Baader attributes the low volatility to fundamentals, rather than signs of market over exuberance.
“The amount of liquidity that central banks have been providing is taking risk duration out of the market,” Baader said, adding that economic data have also shown low volatility, with volatility in U.S. non-farm payrolls data, for example, at the lowest since 1960.