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Money torrents will dominate global markets in 2015

Tuesday, January 6, 2015

Subject

Prospects for market trends in 2015.

Significance

When few attractive investment options are available, existing opportunities are pushed to their limits and capital flows become torrents. Their potentially destabilising power has been repeatedly demonstrated from the 2008 financial crisis to 2014's tumble in bond yields. A country's financial defences often cannot resist the rapid ebb and flow of global money tides, as Russia is finding as it faces a rouble meltdown. This year, money flows may extend the dollar's surge that started in the second half of 2014 further than expected. Key questions include the pace of interest rate rises in the United States and the how much progress China makes in rebalancing its economy.

Impacts

  • The euro will plunge further, while the upcoming ECB's sovereign QE will drive euro-area bond yields to record lows.
  • China will remain a question mark, despite a recent equities rally on hopes of monetary easing and economic reforms.
  • A new Asian crisis could be driven by excessive internal (rather than external) debt, fierce market competition and currency instability.
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