The Reserve Bank of Australia (RBA), in its semi-annual Financial Stability Review, has warned that global financial risks are not easing — in fact, they are rising — as uncertainty continues to cloud the economic outlook.
The RBA said the likelihood of a major international financial shock is increasing, citing three key vulnerabilities: overvalued global markets, growing cyber risks, and persistent weakness in China’s economy.
1. Overvalued markets
The RBA cautioned that global asset prices, especially in the US, remain vulnerable to sharp corrections due to excessive investor optimism. The top ten US tech companies now account for over 40% of the S&P 500’s total value, creating concentration risks.
Leverage among hedge funds, limited liquidity in bond markets, and high interconnections across global finance could amplify any sudden market shock. The report also noted the rise in short-term sovereign debt, particularly in the US, where Treasury bills made up 80% of new issuance in 2024, heightening refinancing risks.
2. Cyber threats and technological dependencies
The RBA warned that the accelerating digitalisation of finance has increased exposure to systemic cyber disruptions. Many large institutions — including banks, super funds, and insurers — rely on a small number of offshore tech providers, raising the risk that operational outages, such as the 2024 Crowdstrike incident, could cascade across the system.
3. China’s economic fragility
China’s prolonged property slump remains a major concern. The RBA said the downturn has now exceeded Japan’s infamous 1990s real estate collapse, straining local governments and financial institutions. A severe disruption in China, Australia’s largest trading partner, would indirectly affect Australian markets via trade and sentiment channels.
Households stabilising
Domestically, the RBA is more upbeat. Most households remain current on mortgage repayments, supported by wage growth, tax cuts, and lower interest rates. Only around 2% of variable-rate borrowers are currently spending more than they earn, and over half of them have six months of savings buffers.
The RBA endorsed APRA’s decision to maintain strict lending standards, warning that any loosening could amplify vulnerabilities amid rising property prices.
