Bankers sound alarm on more inflation, new financial crisis at Hong Kong summit

As more than 300 banking and investment executives gathered in Hong Kong to discuss “living with complexity” in the financial world, they ended up trading trepidations about an uncertain future.

“My biggest fear is there’s one more geopolitical escalation and there’s a market event,” Christian Sewing, chief executive officer of Deutsche Bank, said Tuesday at the Global Financial Leaders’ Investment Summit in Hong Kong.

The event was one of the first gatherings of financial executives since the start of the Israel-Hamas war last month, and executives weren’t shy about sharing concerns of renewed inflation or another crisis.

Markets are “under-discounting” how long high interest rates will last in the U.S. and Europe in the fight to bring inflation back down, Bridgewater Associates Co-Chief Investment Officer Bob Prince said.

Citadel founder Ken Griffin warned world leaders are already risking renewed inflation as deglobalization sentiment takes hold.

Griffin said investors have “got to be watching and investing here in China,” calling deglobalization a “giant wild card.”

Peace and globalization have largely benefited economies, and “we don’t know what a world looks like that involves deglobalization,” Griffin added.

Unknowns include “how much that increases inflation systemically.”

Goldman Sachs CEO David Solomon also called attention to the ballooning national debt in the United States.

“We absolutely have to worry about what’s happening with deficits in the U.S.,” Solomon said.

Ultimately, however, unforeseen forces often cause the biggest disruptions, said Morgan Stanley CEO James Gorman, noting “nobody in this room predicted COVID.”

The event, hosted by the Hong Kong Monetary Authority for the second year in a row, is part of the city’s efforts to move beyond years of protests, pandemic lockdowns and shrinking international investment.

“Hong Kong is back in business,” Hong Kong Chief Executive John Lee said Tuesday, adding, “the world today is more complex and challenging than ever.”

The rise of shadow banking, the practice of money managers and other nonbanks lending money to companies and consumers, is “a real cause of concern,” UBS Group Chairman Colm Kelleher said.

Roughly half of global financial assets are now in “the shadow sector,” Kelleher estimated. “The next crisis, when it happens, will be in that sector. It’ll be a fiduciary crisis.”