MNI POLICY: BOC Poll Sees Surge in Investor Fears of Mkt Shock

The Bank of Canada reported a surge in investors worried about the possibility of a market shock in the next year, according to a survey published Friday, mostly because the pandemic will dent the global economy or trigger a rush of defaults.

The percentage of participants who believe the risk of a shock that could impair the financial system within one year had "increased materially" jumped to 44% from 4% a year ago. Another 38% said that risk had increased slightly.

Medium-term risks were seen having increased materially by 37% of those asked, up from 17% a year earlier. The semi-annual survey with responses from 47 investors was taken in September, after the spring edition was canceled amid global market turmoil.

"The justifications for this increase in risk broadly followed two main themes: The economy and financial system are in a more precarious position as a result of the pandemic " and "The public sector may now have limited capacity to intervene further," the report said.

VULNERABLE INDUSTRIES

The Bank of Canada joined peers in record cash injections this spring to counteract a squeeze that even hurt trading of bedrock government bond markets. Governor Tiff Macklem has scaled back QE to at least CAD4 billion a week as trading conditions eased, and said he can go back in big if that's needed again.

The biggest risks to the financial system were listed as a cyber incident, rising defaults, the pandemic and a weaker global economy, with all those responses listed by between 25% and 30% of those polled.

"Respondents identified retail trade, accommodation and food services, and real estate as the sectors most vulnerable to a rise in solvency risk due to COVID‑19," the report said.