Global financial markets remained calm in FY2014, despite some episodes of increased volatility due to monetary policy uncertainty and the plunge in oil prices. From April 2014 to March 2015, the MSCI Asia ex-Japan index increased by 7.1%, the Standard & Poor's 500 by 9.7%, the Dow Jones Eurostoxx by 15.9% and the Nikkei 225 by 29.8%.

Divergent monetary policies in advanced economies led to increased currency market volatility, which affected corporates with large foreign currency borrowings. While the drop in commodity prices supported overall global growth, it also had financial stability spillover effects. For instance, such effects could occur in the high-yield corporate bond market, where many issuers were commodity-related firms. Liquidity risks persisted amidst uncertainty in financial markets and fragility of investor sentiment, exacerbating financial market volatility. At the same time, the changing financial landscape due to the increased adoption of financial technology may give rise to new and unanticipated pockets of risk.

In the US, economic indicators pointed to an impending interest rate hike, but uncertainty over its timing and implementation remains. In the Eurozone, the comprehensive banking system assessment and strong policy initiatives by the ECB improved financial conditions. However, political uncertainties continue to pose a threat to financial stability.

Uncertainty in emerging market economies increased alongside evolving global monetary conditions. The impact of divergent monetary policies in advanced economies will be closely watched, as Asian policymakers move to strengthen their economies against potentially disruptive capital flows.

In China, concerns over the build-up of local government debt and shadow banking persisted, as policymakers balance financial reforms against near-term stimulus measures to stabilise the economy and soften the impact of a cooling property market.