By Karin Strohecker
LONDON (Reuters) – The recent sell-off roiling global financial markets has not changed the overall economic outlook and it is not up to regulators to prevent investors from suffering losses, Deutsche Bundesbank board member Andreas Dombret said on Friday.
A week ago, U.S. data raising the prospect of higher inflation pushed Treasury yields higher, sparking a rout across bond markets that swept up global stocks. On Friday, world shares <.MIWD00000PUS> were headed for their biggest weekly fall since September 2011 – the height of worries about Greek debt default and a collapse of the euro zone.
“We have been discussing high valuations on the stock market for quite some time, so let’s put it into a perspective of more than only a week … and you would not be astonished that there is some sort of a correction,” Dombret told Reuters in an interview.
“Corrections may well be healthy and the jury is out whether this may be the case or not, so my economic outlook has not changed because I don’t see that the fundamentals have changed,” he said, referring to the backdrop in monetary policy, growth and corporate profitability.
Dombret added that one of the lessons learnt from the past week, was that the quant community can have more of an impact than many people thought.
Meanwhile, the wild market gyrations have also shone a light on complex trading instruments linked to market volatility, after two years of global growth and low interest rates cemented expectations that market swings would stay muted.
Credit Suisse and Nomura were forced to close down a number of products enabling investors to short volatility <.VIX> futures after they posted massive losses. Switzerland’s Financial Market Supervisory Authority said on Wednesday it was in contact with Credit Suisse <CSGN.S> regarding a product linked to market volatility.
But Dombret said he had been astonished to see calls for regulators to step in.
“As a matter of principle, regulation should only come in when you have a very good feeling of what has gone on. (If) you are interfering in a market, you cannot do that lightheartedly,” he said.
“It is not for regulation to prevent investors from maybe losing money – that is not the idea.”
(Reporting by Karin Strohecker, editing by Larry King)