A decade after the crushing financial crisis that sent global stock markets into freefall and left many jobless and homeless, central banks are finally relinquishing their role as the babysitters of financial markets and leaving them to decide their own fate.
Although a necessary step, it also brings fear to the eyes of many and hangs “like a sword of Damocles over the market”, according to Jupiter vice chairman Edward Bonham Carter.
The healing of markets and record-high asset prices have done little to dispel the lack of confidence in what many refer to as the most-hated bull market in history.
As the anniversary of the collapse of investment bank Lehman Brothers is upon us – and with it a whole host of negativity and jitters – Bonham Carter said it may not be the worst idea to focus on what is yet to be fixed in global markets.
Performance of global markets over 10yrs
Source: FE Analytics
“It is only by understanding where the vulnerabilities lie in the current economic system that we can hope to shield ourselves from the next downturn,” he said.
Since the crisis, central banks have pumped an unprecedented amount of money into the global economy and kept interest rates at staggeringly low levels in an attempt to bring it back to life.
This has meant financial markets and central banks have been “locked in a tight embrace”, as Bonham Carter put it.
“When central banks slashed interest rates and introduced bond buying programmes (quantitative easing) to inject money into a financial system where liquidity had dried up, markets welcomed the move. It rebuilt trust among market participants and asset prices began to recover,” he noted.
Fast-forward to the present and it’s an embrace that increasingly feels like a “straitjacket”, the vice chairman added.
“What was supposed to be a temporary measure has gone on for far too long, and with nefarious consequences,” he said.
“The scale of central bank intervention has been so colossal that the four major central banks – the US Federal Reserve, the People’s Bank of China, the European Central Bank and the Bank of England – now hold some $20trn in assets on their balance sheets.”
As central banks try to turn the corner now, their critics will say asset prices are now over-inflated and any attempts to reduce their balance sheets will sabotage the recovery of the market, said Bonham Carter.
But if central banks don’t raise rates and shrink their balance sheets they will have little ammunition to fight off a future market downturn.
“Financial markets understand this vulnerability but are struggling to wean themselves off an unprecedented period of low interest rates and have grown used to central banks being a backstop when times turn tough,” he said.
“Central banks in turn have been very cautious about raising rates for fear of extinguishing the modest economic growth of many developed countries, with perhaps the notable exception of the US – although it is yet to be seen whether the pace of growth there is on a sustainable footing or not.”
Ten years on from the collapse of Lehman Brothers and the start of this unprecedented monetary policy program, Bonham Carter said global markets are still learning how to operate in this new and more complex post-crisis world.
“The ability of people to understand financial and real-economy interlinking has, in my view, seen little improvement,” he said.
However, Bonham Carter did say the emerging markets is one region that has learned from the crisis for three reasons.
“While there is a lot of US-dollar denominated debt among emerging market companies, the mis-matching of revenues and borrowing is less pronounced today,” he said.
“There will always be exceptions, but many emerging market companies have learnt from previous crises, and now only borrow in foreign currency where they have foreign currency revenues to provide a natural hedge.”
MSCI Emerging Markets sector weightings
Source: MSCI
Secondly, information technology in the emerging markets now accounts for a much larger proportion of the region’s equity universe, while commodities and materials represent a smaller share.
The Jupiter vice chairman said this means the region would be better situated to handle a drop in commodity prices that normally comes with a global downturn.
Finally, he said: “There has been a marked improvement in capital management and alignment with minority shareholders, reflected in the much higher proportion of companies paying a dividend today than they did a decade ago.”
While some may point to concerns about a global contagion resulting from the issues in Turkey and Argentina, Bonham Carter doesn’t see either of these as triggers for a global crisis.
“Turkey has always been an outlier in terms of its vulnerability to external crises due its large current account deficit,” he said.
“As for Argentina, a new austerity programme is a step in the right direction to restore faith in the economy with international lenders.
“Yes, emerging markets have sold off but we are not seeing a Doomsday scenario playing out.” 
Similarly, Bonham Carter (pictured) doesn’t think banks will repeat their mistakes of the last financial crisis.
“They have largely smartened up their act over the last decade,” he said. “New challenges and new risks though have come to replace them.
So, if not banks or emerging markets, what will cause the next global crisis?
“We have seen, for instance, massive growth in passive investing and algorithmic trading and at this stage we can only guess how they might behave in stressed conditions,” he said.
Yet, while the cause for the next crisis will remain a mystery until it occurs, Bonham Carter said that there is one thing that links all recessions - pre-existing flaws in the system.
“In the current recovery, record debt levels, fuelled by a decade of low interest rates, have become a major concern,” he said.
“Since the global financial crisis of 2008, McKinsey reports that total global debt (including household, nonfinancial corporate and government debt) has surged to $169trn from $97trn in 2007.”
While, high levels of debt in the system could be one cause for concern, another may be politics, which has come to the fore in recent years and is now playing a much larger role in investors’ thinking, posing a real threat to global growth.
Taking Turkey as an example, Bonham Carter said: “Power is concentrated in the hands of one man, Recep Tayyip Erdogan, a demagogue with unorthodox economic views that have contributed to his country’s current crisis.”
It is not the only country where there is concern however. In Russia, Putin’s annexation of Crimea, accusations of collusion in US politics and his role in Syria have all caused a weak economy and a whole host of sanctions.
Meanwhile in the UK, Brexit continues to weigh on the country and over Europe until a deal is reached. Finally, the likely victim from US president Donald Trump’s trade war rhetoric against China and Europe in particular is global growth, with globalisation coming under pressure, said the vice chairman.