Shocking International Risks with Large US Bank Failure
When a large US bank like Silicon Valley Bank fails, due to high interest rates, it can have significant implications for international countries, as the US financial system is highly interconnected with the global financial system.
Many international countries, especially emerging market countries, have huge amounts of debt denominated in US dollars. As interest rates in the US go higher it becomes more costly for these countries to borrow money. Compounding this problem, when a large US bank fails, it could lead to a "contagion effect," in which other banks and financial institutions become more cautious about lending to each other, potentially leading to a credit/liquidity crunch. This could impact international countries that rely on borrowing from US banks or depend on US banks for their own financial stability.
The failure of a large US bank can trigger a financial crisis and cause instability in global financial markets. This could lead to a reduction in economic growth in other countries, as well as increased unemployment and reduced consumer and business confidence that can lead to economic recessions that cause stock markets to crash.
Overall, the failure of a large US bank due to high interest rates could have significant spillover effects on international countries, especially those that are closely tied to the US financial system.
At iSectors®, we’ve been urging caution when it comes to investing in emerging markets. We understand that emerging market equities seem fundamentally undervalued relative to the S&P 500. However, we prefer to hold high quality U.S. based multinational value stocks, especially those that have a record of increasing dividend payments for many consecutive years. If you agree, you may want to call us to discuss the iSectors® Domestic Equity Allocation model.