Market commentary: Gearing up for 2015, key themes to take centre stage

December is usually the month whereby investors take stock of what happened throughout the year, what went wrong (in their investments) and what fared better, what lessons are to be learnt from the year gone by, and how, most importantly (in my opinion), to position themselves for the next year to have a cutting edge over the market.

Well, this December was no exception to be honest; however, this time round, markets have had their fair share of added volatility to contend with, which ultimately kept investment managers, asset managers as well as investors pretty much on their toes, literally to the final trading sessions of the year.

From declining inflation and growth in the Eurozone, to backtracking in the US Federal Reserve’s end of year guidance for rates as at end 2015, to the persistent decline in the price of oil (and the impact this has had on currencies, emerging markets and companies highly exposed/dependent on the price of oil, which happen to be quite a few).

It is therefore safe to say that the volatility and large price movements and fluctuations we have witnessed over the past few weeks, and the market’s eagerness to closely scrutinise routing incoming economic data deep into the month of December, is highly uncharacteristic for this time of the year. It is very difficult to devise what this really means, but it could very well mean that it is merely a taste of what is expected in the early months of 2015.

As we continue to extensively cover markets in great detail, the key themes are expected to be fivefold, amongst many others.

In the Eurozone, the highly talked about Quantitative Easing (asset purchases) programme has become pretty much a formality. However, the magnitude, timing relevance and effectiveness of this program are going to be crucial and will determine the fate of the European credit market 2015, both within the investment grade and high yield space, as well as that of equity markets in this region.

Following the announcement of the withdrawal of monetary easing measures in the US, better known as the tapering of asset purchases, it has become an almost certainty that rates (key interest rates) are set to rise in the US, most probably over the summer months  of 2015.

The evolvement of the Russian/Ukrainian crisis has without any doubt had devastating effects on markets ever since the crisis broke out in February of this year, sending both countries’ economies into a recession.

Furthermore, the sanctions imposed by the EU on Russia have not only had a direct effect on Russia itself but also on countries (and companies) highly exposed to Russia. This resulted in a reversal (deterioration) of economic trends within the Eurozone itself, keeping both inflation and growth anchored at low levels.

The price of oil has halved in a span of just 5 months, and has had adverse economic implications (in the short term so far) on the oil exporting countries and has also negatively impacted those companies and countries highly dependent on the price of oil.

From a personal consumption point of view, disposable income and thereby consuming power, is expected to rise as a result of this decline, but the question really remains if this additional purchasing power will translate into an increased demand for global growth and result in higher overall growth.

This question is yet to be answered in 2015, however, what is certain for now is, that OPEC has shown no signs of backtracking on its comments earlier on this month that the production of oil is expected to abate in an attempt to keep the price of oil supported, which further fuelled the decline throughout most of December.  

Following a decline in economic activity overall, year-on-year, in China, which has had a contagion effect on neighbouring countries but also on the US and Eurozone, a pickup in economic activity in China in 2015 will benefit all aspects of credit markets, so investors should be closely watching (and scrutinising) incoming Chinese economic data.

We would like to wish our readers best wishes for the festive season and a prosperous 2015. At this time of joy and celebration, our thoughts are with the families involved in the disappearance of the AirAsia Flight QZ8501 as well as the tragic ferry collision in the Adriatic Sea.

This article was issued by Mr. Mark Vella, Investment Manager 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.

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