Risk Committee Update: January 2025

January marked a pivotal moment for global capital markets, shaped by technological innovation, evolving market dynamics, and regulatory challenges.

United States

The U.S. capital markets experienced significant turbulence in January, with the technology sector leading a sharp decline. Nvidia faced a record-breaking market rout, losing $593 billion in value after the emergence of DeepSeek, a Chinese AI startup. DeepSeek's breakthrough in cost-effective AI systems, rivalling U.S. tech giants like OpenAI, triggered fears of competitive disruption. Other major players, including Microsoft, Meta, and Alphabet, also saw substantial losses. Despite these challenges, the broader market remains resilient, with investors closely monitoring Federal Reserve policy and the possibility of rate cuts later in the year.

Europe

European markets followed the U.S. trend, with technology shares suffering the heaviest losses. The STOXX 600 index fell 0.6%, while the European tech index recorded a sharp 5.8% decline, its worst performance since late 2024. Key chip equipment manufacturers, including ASML and ASM International, saw significant sell-offs due to competition concerns arising from China’s AI advancements. The European Union proposed extending London’s clearing rights for EU trades until 2028, citing the need to maintain financial stability while the bloc works toward developing its Capital Markets Union. The extension aims to mitigate risks to EU financial markets and provide clarity to participants, as Europe continues to face challenges in handling the scale of derivative clearing currently managed in London. Geopolitical tensions and monetary policy decisions from the European Central Bank remain critical focal points for investors.

China

China's capital markets were energised by the disruptive innovation from DeepSeek, whose cost-effective AI technology positions the country as a formidable competitor in the global tech landscape. This development has intensified competition, particularly in the AI and semiconductor sectors. Domestically, China continues to implement measures to stabilise its economy, with mixed reactions from international investors.

Saudi Arabia and Kuwait

In the Middle East, financial markets are undergoing transformative changes. Saudi Arabia has seen a decline in retail investor participation, with foreign institutional investors becoming more prominent. The market remains dynamic, driven by IPO activity and advancements in post-trade infrastructure. Kuwait, on the other hand, is focusing on digital innovations, such as virtual meeting platforms and streamlined account-opening processes. The country is also in the process of implementing a Central Counterparty (CCP), which will expand its financial instrument offerings.

India

India's capital markets are undergoing structural reforms aimed at enhancing the resilience and efficiency of clearing corporations (CCs). The Securities and Exchange Board of India (SEBI) is exploring a shift toward a horizontal central counterparty (CCP) model to strengthen the financial and operational independence of CCs, which are currently owned entirely by their parent stock exchanges. This model seeks to address fragmented market structures, regulatory overlaps, and concentrated trading activity by creating a diversified ownership structure that includes user groups. Improved governance, fee transparency, and financial independence are also being prioritised to enable CCs to invest in infrastructure and maintain robust risk management systems. As Indian markets continue to attract global investments, these reforms are expected to align the clearing ecosystem with global best practices while ensuring market stability across asset classes.

Global Outlook

The International Monetary Fund projects global growth to stabilise at 3.3% in both 2025 and 2026, below the historical average. Missing or incomplete data in operational risk areas—such as margin calls and default management—remains a challenge across many financial markets, particularly for CCP assessments. With cyber security risks becoming more prominent, these gaps are increasingly critical to address.