JP Morgan’s 835 institutional clients participated in an e-trading survey. The survey was directed to those who use their e-trading services. This is the seventh year conducting the survey, and the clients were sampled from over 60 locations.
They discussed different issues that affect the investment space. They discussed issues such as AI vs blockchain, inflation vs recession, war, pandemic, etc. The survey is a great way to get institutional investors’ insights and the risks they foresee in the market.
Which developments the traders think are likely to shape the markets in 2023?
From the survey, the biggest concern is a recession at 30% of the respondents. 26% of the respondents said their biggest concern is inflation.19% mentioned geopolitical conflict, 14% said market and economy dislocation, 9% said government policy change while 1% of the respondents mentioned ESG/climate risk factors. Interestingly, no one mentioned the global pandemic as a source of concern.
The results are different from the ones last year. In 2022, inflation topped the list at 48%, then 13% cited market and economy dislocation, 13% mentioned global pandemic, 5% recession and 3% ESG/climate risk factors. Last year, geopolitical conflict was not a concern.
China plans to open up its economy, which will impact the global market. China opening up translates to more demand for global commodities. This will affect inflation as there will be more inflation for products on demand and their derivatives worldwide.
There will be increased demand for travel by the Chinese. This means more inflation for travel.
China opening up and many other factors make recession a big risk this year. A high recession will mean more damage to the economy.
Geopolitical conflict is a higher risk than last year. The war against Russi and Ukraine has been a big contributor. There are also cold war tensions between China and the US.
The dislocation between the market and the economy
There could be a situation in which stocks, bonds or crypto prices are likely not to reflect what is happening in the broader economy. Although the economic conditions seem to worsen, pricing does not reflect that. This is a risk for investors when it comes to capital allocation.
Government policy change
It was not a concern last year. It may be caused by changes in the US around the control of the House of Representatives. More market-friendly measures could mean more of a boost for the markets. This is a risk as it may lead to more gridlock, e.g. the US debt ceiling clash. If the US did not agree, it would affect the global financial market.
ESG/Climate risk factors
Climate change is no longer a real concern for investors as they feel there are more pressing issues to address.
When investors were asked to compare inflation this year to last year, 44% of the investors said they see it going down this year, and 37% said it would level off. The different opinions were based on their location. Those in the UK and Europe have a different view on inflation than those in the US. The US believe inflation will come down this year.
Inflation expectations are important as the inflation data as the expectations can drive inflation higher.
What is the greatest daily trading challenge in 2023?
Investors believe that market volatility will be the biggest challenge to trading. From the survey, volatile markets were top at 46%, followed by liquidity availability at 22%, workflow efficiency at 9%, and others. The results differed from last year, as the biggest concern last year was the availability of liquidity.
Trading technology in 2023?
53% of traders believe AI/machine learning will be the most influential in trading in the next three years. This will be followed by API integration, blockchain and distributed ledger technology.
Top 3 Market structure concerns?
The main market structure concern is access to liquidity, followed by regulatory change and market fragmentation. Just like last year, access to liquidity was top of the list.
Trends in the electronic trading space or percentage of their trading volume will be through e-trading channels?
The respondents predict that crypto assets and digital coins will likely see the most growth in institutional electronic trading. These include API multi-dealer platforms and single-dealer platforms. This is significant as it shows that investors are increasingly moving their crypto trading activities to these more institutionalized Services.
Several large companies on Wall Street have started to open their e-trading technologies up for crypto-related trading, e.g. the Aladdin platform started offering Bitcoin Trading.
This will create more efficient and liquid markets, which helps to reduce volatility and improve price discovery. It is a positive force for institutional crypto adoption.
What describes your focus on crypto?
72% have no plans to trade crypto/digital coins, and 14% plan to start trading within five years. Only 8% were trading crypto/digital coins. It means less institutional money in the crypto space. Less activity may be due to regulatory scrutiny by the SEC.
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