What to expect from financial markets in 2015

Now that the New Year has been welcomed and the turkey eaten we look to map out 2015 in order to position ourselves accordingly.

The general theme carried forward from 2014 is deflation in global economies. The worry of “low inflation” remains most concerning in the Euro area and Japan particularly, with the US showing limited signs of an uptick. The low interest rate environment and monetary easing in order propel economic activity, and hence prices forward is expected to continue throughout the whole of this year.

This sets the scene for continued tightening of spreads (prices of bonds rising) for investment grade bonds in the Euro area. The US ended the second half of 2014 with consistent stronger economic performance which should see a possible interest rate hike, however I believe that will be later in the year, and possibly early 2016 as lagging global economies weighs on US growth and general sentiment.

Greece is expected to be a hot potato in early 2015, as political risk re-enters the fray as the country is forced into snap elections. The growing support for anti-EU parties and the risk of their election has seen the country’s stock market fall 31% in 2014. Other countries which may experience the effects of political risk include the UK, where political analysts expect a tight election contest which could end up with a hung parliament. Other EU countries facing elections include Spain, Portugal, Turkey and Sweden.

The ECB is expected to continue its balance sheet expansion program with QE to be introduced possibly in the later part of the year should the Euro countries remain subdued. The union risks replicating Japan’s “lost decades” unless concrete structural reform and effective stimulus measures are introduced.

Oil is expected to continue to make headlines in 2015, as Russia and China accuse the US of fabricating the large drop in the price of oil to hurt the oil reliant economy. This, coupled with sanctions from the US and the EU is expected to contribute to another weak year for the Russian stock market, down 9.3% in 2014. Tensions between the world powers are expected to continue which adds to the increasing level of volatility which has returned to the markets.

China continues to navigate a tricky but necessary slowdown in its credit-induced growth. Concerns about the country’s property sector, which had a sharp decline in 2014 due to prices falling and inventories rising.

This article was issued by Mr Simon Psaila, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.