The Market's Twin Towers
Ingham Analytics issues a note on the role of liquidity in the efficient function of markets. It is entitled “The Market’s Twin Towers.” Top trader Andrew Kinsey explains why liquidity is crucial to the efficient function of markets at this time of turmoil in world stock exchanges, currencies and bonds. For local investors this is a key thing to understand. There has been a liquidity disconnect. Crowded market risk trade collapses as everyone simultaneously heads for the far narrower exit than existed when the trade was put on. Poor liquidity though is worse than high volatility, a factor that will be analysed in a forthcoming paper. Andrew also addressed the South African Banking sector, which dovetails nicely with what Mark Ingham wrote about last week (see “COVID-19 coup de grâce for banks.”).
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