UK not alone in risking another ‘Liz Truss moment’, says Ashmore CEO Coombs
Global debt balloons to about US$74 trillion as governments and companies ramp up borrowing
[SINGAPORE] Countries such as the United Kingdom that are running deficits and relying on financial markets to fund them are “definitely” at risk of another “Liz Truss moment”, said Mark Coombs, chief executive officer at asset manager Ashmore Group.
“One of the questions in the UK at the moment is that we’re about to get another one,” he said, referring to the market turmoil caused by the then UK Prime Minister’s new policies in 2022. “If you are a country that’s running deficits and relying on market access to do it, if you get a loss of confidence in your market, it doesn’t just reprice it. You get any kind of buyer’s strike in parts of the curve.”
UK bond yields spiked in September 2022 after Truss’s new government introduced large, deficit-financed tax cuts as part of a raft of new policies. The resulting market turmoil was so severe that she swiftly abandoned most of the initiatives, fired her Chancellor of the Exchequer and resigned after just 44 days in office.
“Once confidence is gone, you have a real problem, you do get a market shock,” British billionaire Coombs said, speaking at the Bloomberg New Economy Forum in Singapore.
Pacific Investment Management’s managing director and vice-chairman John Studzinski disagreed. “I think you don’t have another Liz Truss moment,” he said at the same forum. “You don’t have a US dollar shock, or whatever, if you’re anticipating it.”
“Also in the Liz Truss moment case, I think that was about a third Liz Truss, and two thirds LDI,” he added, referring to the liability-driven investing strategy used by pension funds that contributed to the market rupture.
Ashmore’s Coombs said that there were some worrying signs in April’s tariff-driven sell-off that markets were growing concerned about rising global debt levels.
“There was a moment when the curve did not behave quite like it should do and there was a risk-off moment,” he noted. “There wasn’t enormous amounts of buying at the long end. It did not react exactly how everybody expected. And that’s telling you that the markets were much happier staying in the short term.”
UK gilts slumped last week after Chancellor Rachel Reeves dropped plans to raise the headline rates of income tax in the coming UK Budget. Japanese government bonds extended losses this Thursday as markets braced for Prime Minister Sanae Takaichi’s stimulus package, set to be unveiled on Friday (Nov 21).
SEE ALSO
The world’s pile of total debt has ballooned to around US$74 trillion as governments to corporates embark on borrowing sprees.
Global bond sales have soared to a record US$5.95 trillion this year alone, as borrowers take advantage of easy market conditions to fund everything from the boom in artificial intelligence projects to a revival in acquisitions.
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