What is the 2015 investment outlook?
Phrases such as ‘lack of options; difficult growth; hard to find value’ are the consensus; few can see anything apart from stocks that may offer growth. So, 'stick with equities' is the only real opportunity being talked about.
We know however that that market predictions are never wholly correct: many will be partly right, and lots will happen that it’s impossible to envisage. So we enter 2015 with caution, a year where it is important to have both risk and a long term mindset at the forefront of your mind.
Why the lack of opportunity?
Most markets are no longer under-valued, with monetary policy underpinning of asset prices. It is easy to forget that ‘what goes up must come down’, but such is the perceived dearth of opportunity that buying on dips in equity markets is seen one of the only obvious sources of opportunity.
Market volatility from the current low levels is likely and has the potential to surprise. Traditional hedging could be under threat with the potential for equity and bond movement’s to correlate, given where both asset classes are, and bond yields being so depressed that they risk losing their role as shock absorbers.
Interest rates can only remain low, and whilst inflation is expected at some point it should be controlled. Fundamental economics suggests this means low rates of return.
Where and what to buy?
US growth is on an upswing, and the Fed could start raising rates in 2015 which would be a positive step for growth (as long as the economy is strong), and flatten out the yield curve. Eurozone growth could surprise on the upside due to rock-bottom expectations and QE from the ECB should boost the region’s equities.
Japan’s monetary stimulus brings short-term equity opportunities, in the face of huge long-term debt risk. China is digging deep with reforms to stave off the faltering growth.
It’s looking difficult then.
Volatility is set to return, and so whilst the foundation for a strong US dollar is in place, it will be a bumpy ride along the path to sustainable growth.
There are also several key political and economic events to note in 2015, and geo-political tensions are unlikely to decrease, with Russia in the limelight in light of oil prices and continuing conflict with Ukraine.
The global recovery from the 2008 financial crisis has been unusually tepid. Massive injections of liquidity have resulted in the financial market cycle moving ahead of the economic cycle in many countries. Central bank stimulus has not only suppressed volatility, but pulled forward financial activity as well.
Growth in 2015 is expected to be low, with potential returns of single digit numbers being touted. There seems little to get overly excited about, and lots of pitfalls that could snare investors.
Major economic events:
Jan – Lithuania joins the Euro
February – India Budget release
March 15th – US debt ceiling
Major political elections
February 14th – Nigeria
May 7th – UK
June 13th – Turkey
October – Argentina, Portugal, Poland
December 20th – Spain