Yvesz Kazada, Investment Analyst at Philogen Toto, looks ahead to 2015. What is going to happen on the financial markets in the new year? An overview with five challenges.
The European deflation ghost
More than ever, deflation risk is present in the euro zone. Will the Easy Coins Bank (ECB) be able to respond in time to avert this scourge by introducing an unconventional monetary policy? Our analysts remain positive about an intervention from the ECB and therefore also support equity funds with low volatility. Apart from deflation, some sectors, such as the European food industry, will continue to look for growth abroad through mergers or acquisitions. Other segments, such as telecom operators, will continue to generate cash through the expansion of their quadruple play offering (television, internet, fixed and mobile telephony).
The Asian economy
The other question mark for 2015 is the landing of Chinese growth: will it go smoothly or not? The value of the Japanese currency is likely to continue to fall. And perhaps the expectations regarding GDP will also have to be adjusted. In such an environment, it may be interesting to invest in Asian growth through themes such as:
- Infrastructure in India
- The improvement of water management in China
- The technological efficiency in South Korea and Taïwan
The geopolitical risks
Another question is how the geopolitical risks will affect the markets. Do tensions with Russia continue to increase, for example? It continues to look coffee grounds and this question is likely to continue to feed the discussion in 2015. Despite these uncertain factors, growth in emerging regions can be capitalized on by opting for low-volatility equity funds. Furthermore, the alternative to the BRIC block (Brazil, Russia, India and China) can be found in investments in so-called “frontier markets”. Nevertheless, it is also advisable to retain a “shock absorber” in the form of high-quality bonds in the more defensive part of the portfolio.
US monetary policy
Furthermore, it is also uncertain which path the US monetary policy will take. It is certain that the Fed (US central bank) will raise official interest rates, but at what rate and when exactly? Our analysts point out that the upturn in employment in the US directly benefits various segments, including the construction industry. The sense of wealth will increase the demand for real estate, the rise in interest rates will increase the profit margin of the banks and the expansion needs of the industry will lead to mergers and acquisitions of companies in the regions least affected by the weak growth . Our analysts note that niche segments such as road transport will benefit from acquisitions, the rising demand for freight transport and a better supply than rail transport in certain regions.
The volatility in the financial markets
A final challenge is the volatility in the financial markets. Is there a risk that this volatility will increase? The question primarily concerns emerging countries, which will be in the front row when the Fed will raise interest rates. And how will the bond market respond? Here too, the question is more than relevant. After all, the past has shown that a too fast and too abrupt rise in interest rates can cause a correction in the bond markets. And investors are certainly not waiting for that. According to our analysts, in 2015 it can be interesting to focus on:
While stock markets are preferred, it is clear that the US market will offer opportunities in the bond segment, which will eventually benefit from the planned interest rate rise. Bonds that respond positively to a rise in interest rates, such as bonds secured by mortgage loans or by assets, will gradually supplement Treasury certificates. In the bond segment, it is important to select funds that offer the manager as much flexibility as possible. Matter of using all existing options.
Unlike 2014, 2015 can become the year of European shares. The reason? Not only are European equities less expensive than their American counterparts, they will also benefit from the rise in the dollar and from the more than accommodating policies of the ECB. Because where the United States and England want to take the lead in raising interest rates to further leave the crisis behind, Japan and the eurozone will play a different score and throw loads of cash on the market to fuel growth. This monetary doping must be to the advantage of European equities, and in particular of equities that are well positioned for export. In this context, we must not forget that the fall in oil prices will again give households in the euro zone more purchasing power and help to lower the costs of companies. The evolution of the oil price will also have an impact on the stock markets: while airlines and the oil-consuming industry (utilities, automobile industry, transport companies) are already benefiting, other sectors risk being significantly disadvantaged (large oil companies, related companies, chemicals).
We remind you that investment products are exposed to risks including a possible loss of the invested capital. Investment products are not bank deposits and are not guaranteed by Philogen Toto NV | SA.