Coverage: Predicting the state of the global economy
As we turn to the first real work week of the New Year, economists are offering a range of predictions for stocks, the Eurozone and oil prices. Of course they’re just speculation, but well informed investors and money managers are still trying to determine where to move assets to capture the highest returns. Overseas markets can be attractive.
The Financial Times reported in a story by Claire Jones that the Eurozone was likely to continue asset purchases to stimulate the economy:
Any effort by the European Central Bank to launch a massive quantitative easing programme this year would fail to revive the eurozone economy, according to economists polled in a Financial Times survey.
The FT survey of 32 eurozone economists, mainly working in the financial sector, conducted in mid-December, found most expected the ECB to launch QE in 2015 — catching up with the world’s other main central banks that have all bought large quantities of sovereign debt since the last financial crisis.
Twenty-six economists forecast the central bank would start purchasing government bonds this year, while five thought it would not. One did not respond to the question.
A stuttering recovery and a worrying drop in inflation have raised fears of another financial crisis in the currency bloc and put pressure on policy makers to cast aside powerful opposition from Germany and begin purchasing sovereign debt.
ECB president Mario Draghi last week gave his strongest signal yet that the central bank would extend its asset purchases to include sovereign debt in the next few months. A decision could come as early as the next governing council meeting on January 22.
The Atlantic’s James McBride and Jeanne Park compiled predictions from four different market watchers. Here is where one economist thought China was headed in 2015:
Damien Ma, The Paulson Institute: As China hops into the Year of the Goat in 2015, it is shaping up to be a year of transitions. Once a high-octane growth machine, China is now shifting into the so-called “new normal” gear of development, in which topline GDP will be de-emphasized. In addition, 2015 marks the end of the twelfth Five-Year Plan (FYP) cycle and the beginning of the thirteenth, which ends in 2020—the year by which the country is supposed to have become a “moderately well-off society.”
These themes were echoed loudly at December’s Central Economic Work Conference, an annual high-level meeting that determines policies for the following year. This year’s conference intended to prepare Chinese policymakers and citizens, as well as markets and investors, for the prioritization of structural reform over growth. To reinforce the new paradigm, Beijing is likely to set a growth target of around 7 percent in 2015, down from 2014’s 7.5 percent, while emphasizing other indicators such as employment and social welfare.
Similarly, macroeconomic policies will favor economic reforms over stimulating growth. Relatively tight, though flexible, monetary policy and an increasingly liberalized exchange-rate regime could mean more fluidity in the yuan’s appreciation and depreciation. In contrast with Tokyo, however, Beijing has little reason to drastically depreciate its currency to support exports. In fact, top leaders are keen to promote imports as well as outbound capital flows. Beijing will preempt a collapse in growth with targeted fiscal policy and restrained liquidity tools rather than extensive stimulus. These policies could support new areas of growth in services and other high-value-added industries.
And the Chinese stock market may also see a decline after reaching record highs, Bloomberg’s Belinda Cao reported:
Chinese stocks in Shanghai are poised for a temporary retreat after their valuation premium over Hong Kong-traded counterparts surged to a more than five-year high, according to Janney Montgomery Scott LLC.
The Shanghai Composite Index, comprised mainly of yuan-denominated A shares, is valued at about 12 times estimated earnings after surging 34 percent in the past two months. That’s 54 percent more expensive than the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong and close to the widest gap since July 2009, according to data compiled by Bloomberg.
“We would look for a pause in the A shares and probably even a decline, a pullback that we would consider as healthy,” Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, said by phone Dec. 30. His firm oversees $67 billion in assets including Chinese equities. “I suspect over time as the market becomes more liquid, that the valuation disparity would collapse to something more normal.”
Individual investors, who account for 80 percent of Shanghai volumes, are driving the rally in mainland shares amid speculation policy makers will take further steps to boost growth in the world’s second-largest economy after cutting interest rates six weeks ago. Local traders opened about 2.7 million new stock accounts in the final four weeks of 2014, a sevenfold increase over the same period a year earlier.
Holly Ellyatt wrote for CNBC that many oil market watchers were struggling to determine where the price would head in 2015 as it continues to fall:
On Jan. 2, benchmark Brent crude was trading at $57.11, having fallen from a high of around $115 a barrel hit in mid-June.
With prices falling fast and hitting five-year lows in mid-December, commodities research teams at the world’s investment houses and banks scrambled to revise their 2015 predictions for oil and the potential impact on global economies.
And as wildly fluctuating as the price of oil has been, so have the predictions. While HSBC told investors to prepare for $95 a barrel by the end of 2015, other analysts were far more bearish. Morgan Stanley cut its 2015 forecast for Brent saying that in a worst case scenario crude prices could fall to $43 per barrel in 2015, although its base case scenario was for $70.
The U.S. shale revolution and its accompanying rise in oil production has been a decisive factor in the fall in the price this year.
Investors will continue to see the impact of dropping oil prices across their portfolios. Stocks in the U.S. and other markets seem poised to continue their gains, but much of that could depend on the growth rate in developing countries such as China. It’s never easy to figure out where to put money to work and the global economy seems to be growing more complex.