The lessons of the subprime crisis

History has a tendency to repeat itself due to a multiplicity of mechanisms such as the behavior of central banks which can overtighten monetary policy, households which over leverage, and over- or under-investments in some essential sectors. That, however, opens windows of opportunities for investors to better manage their risks. But one cannot totally rely on past track record or back-tested strategies to implement this, as new mechanisms emerge with zones of instability and future growth is simply not easy to predict.

The subprime crisis

Following the 2001 US recession, tax cuts and easy monetary policy supported growth and demand for Chinese goods reinforced by an artificially weak renminbi. We saw back then the rapid emergence of China and BRICs (Brazil/Russia/India/China) which exported deflation, and a US consumer that went on a house-hunting binge increasing leverage even for those with poor credit metrics. Banks simply sold off these risky mortgages. Eventually, the real estate market came undone and an enormous global credit crunch ensued known as a Minsky moment. Fear of this was typified by a 2007 UBS report from George Magnus “The Credit Cycle and Liquidity: Have We Arrived at a Minsky Moment?”. The question he asks now is whether this is the time of China’s Minsky moment given its very expensive real estate market?

The anything goes rally

The post-2008 period was one characterized by a globally very loose monetary and to some extent fiscal policy with a massive push into infrastructure and real estate in China. Financial assets rose to anticipate the long-term growth, with equity rising much faster than debt decreasing leverage. Inelastic assets such as real estate, Tech and eventually cryptos benefited enormously, especially on a quest for real assets amid fears of currency debasement. In China for example, the vast majority of household wealth is stored in the real estate market. As inflation now shocks the economy, the question is whether the house of cards will fall. As happened in the subprime crisis, different markets send early warning signals. Could it be now Unicorns (Tech holdings high on hope, low on revenue)?

This time it is somewhat different

While China is trying to prevent an enormous credit crunch, it may not succeed – and this will be compounded by its zero covid-19 policy. In contrast, in Europe and the United States, banks are far more tightly regulated than they used to be and central banks are far more attuned to financial stability, enabling them to adjust the value of expensive assets by injecting or withdrawing liquidity. The focus may well be on the very expensive real estate market (US, Europe, China) hurting demand from newly-formed households. Stocks outside of the US are actually starting to become attractively valued even though in the US, we are far from fair value – apart from the Tech sector (many unicorns have plunged sharply in value already for example). Amid the widening dispersion, opportunities are starting to build in company, country and factor selection.

  What does it mean? In a period of ongoing economic and political instability, flexibility remains key as does the focus on less risky companies that are cheap and offer a solid path of earnings. Examples that come to mind are Coca-Cola and Air Liquide.
The performance represented is historical; past performance is not a reliable indicator of future results and investors may not recover the full amount invested. There can be no warranty that an investment objective, targeted returns and results of an investment structure is achieved. The value of your investment can go up and down, and you could lose some or all of your invested money. Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches and subsidiaries. This document is advertising material and is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. Consequently, the information contained herein will be superseded in its entirety by such Offering Memorandum or contractual arrangement in its final form. Any investment decision should therefore only be based on the final legal documentation, without limitation and if applicable, Offering Memorandum, contractual arrangement, any relevant prospectus and the latest Key Investor Information Document (where applicable) relating to the investment. The appropriateness of an investment or strategy will depend on an investor’s full circumstances and objectives. Nordea Investment Management AB recommends that investors independently evaluate particular investments and strategies as well as encourages investors to seek the advice of independent financial advisors when deemed relevant by the investor. Any products, securities, instruments or strategies discussed in this document may not be suitable for all investors. This document contains information which has been taken from a number of sources. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information and investors may use further sources to form a well-informed investment decision. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment. Prospective investors or counterparties should also fully understand the potential investment and ascertain that they have made an independent assessment of the appropriateness of such potential investment, based solely on their own intentions and ambitions. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. A summary of investor rights is available in English through the following link: The Legal Entities’ branches and subsidiaries are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and subsidiaries. This document may not be reproduced or circulated without prior permission. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches and/or subsidiaries.

Country selection

For more information about products in your area, please select a country below:


The information contained in these webpages is solely intended for professional clients.

Data, information and potential objectives released on these webpages are provided for information only.

Nothing in the information contained on these webpages shall be construed as an investment advice from NAM or any of its affiliated companies. The content of these webpages does NOT constitute i) a recommendation to invest in any financial instrument, financial product, investment structure or instrument, ii) tax or fiscal advice, to enter into or unwind any transaction or to participate in any particular trading strategy and (iii) substitute for user’ own research or their technical and/or business judgement based on their personal situation. These webpages are not an offer to buy or sell any security.

All publications, press release and other material including but not limited to video, brochure presented or released on these webpages are presented “as is” and to the best of NAM ́s knowledge when issued.

By clicking on “Proceed” I confirm that I am a professional client and I have read, understood and accept the General Terms and Conditions and the Privacy Policy for this website.
*A Professional client within the meaning of the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 as amended.