Market Commentary: Western sanctions push Russia toward recession

Markets are called to open lower this morning.  This is after China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5% growth target this year. Western sanctions are pushing Russia toward recession and the pain could intensify if US and European leaders turn the screw over tensions in Ukraine.

We believe that 2014 will be characterised by the move towards financial markets standing on their own feet, as the global policy support that has provided abundant liquidity to markets starts to be withdrawn. This will mark an important change in the drivers of investment returns:

·         Instead of liquidity, corporate earnings will move into the spotlight and drive equity performance.

·         The gap between equity and fixed income valuations will continue to normalise as bond yields rise.

·         Corporate credit is likely to outperform sovereign debt but we do not anticipate a 'great rotation' out of bonds.

·         Emerging markets are a 'wildcard' and likely to remain volatile.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

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