The global liquidity present now could soon freeze says the CEO of UBS as share markets in US witnessed their worst performance since 1931 and Chinese economy is also facing a slow but steady shakedown. In December indices of both S&P 500 and Dow reported their largest monthly loss since February 2009. As stocks got hammered on the bourses analysts started complaining that maybe the increase in interest rates by Federal Bank was responsible for drying up of liquidity in the markets. At a panel meeting in Davos UBS CEO Sergio Ermotti stated that the stock market crisis in December was due to convergence of both political and macro fears that drying up of funds in markets may make it tough for investors to move capital fluidly. He insisted that the fears are not unfounded as lack of liquidity is a real crisis and it can freeze as swiftly as water in Davos.
He said that during last quarter of 2018 there was historic increase of 24 percent in cash reserves as the investor base in US pulled out from stock markets. He warned that this liquidity was not meant for reinvestment in other markets or resources but was being held back as reserve as people feared that things will go wrong. He stated as most of this fluid cash was being managed by fund managers for others they may not be as willing to invest money in markets like banks just to ensure that things go well. The meet also had senior executive Mary Callahan Erdoes from JP Morgan who echoed Ermotti’s statement saying that lack of liquidity is a worry of most market movers now. She said that market anomalies may get cured if the capital with investment firms is redeployed again but the curbs on making expensive bets after the financial meltdown of 2008 has reduced market liquidity.