The market is facing various challenges going into the new year. We list 10 major predictions for financial markets in 2015, which would offer some insight to investors.
(1) The US dollar is likely to stay strong. Given the strong economic fundamentals in the US compared with Japan and the eurozone, the Fed is expected to hike interest rates in the second half. By contrast, central banks in Japan and the eurozone are set to adopt monetary easing measures to boost economic growth in the short term, which would in turn support the greenback.
(2) US economic growth momentum may run out of steam soon, which may prompt the Fed to resort to another round of quantitative easing (QE) in the second half. The weak external economic environment and a strong US dollar make it difficult for the US to maintain strong growth. Therefore, the Fed may consider holding back hiking interest rates or even consider monetary easing in the second half.
(3) Disinflationary pressure may start to surface. Growth prospects for major economies including China, Japan and the eurozone will continue to deteriorate in 2015, which will put downward pressure on commodity prices like oil. And monetary easing by major central banks has failed to channel money into the real economy, and credit growth worldwide continues to moderate. Therefore, major economies may see rising inflationary pressure next year.
(4) US equities may experience another boom in the second half if the Fed kicks off QE4.
(5) Continuously falling oil prices may trigger another financial crisis. Oil prices may continue to face headwinds in coming years due to a strong US dollar, slowing global economic growth, and the ongoing battle between oil producing nations like US and Saudi. The sharp price drop may deal a heavy blow to nations like Russia which rely heavily on oil and gas exports.
(6) Massive capital will flow out of emerging markets, which will put their equities markets under pressure. The capital outflow from emerging markets may gather pace given a strong US dollar and volatile financial markets. The outflow may last until the first half before the Fed launches new QE if the US dollar heads south.
(7) China’s central bank will continue to pump liquidity into financial markets. However, growth may continue to weaken next year, becoming the “new normal” for the coming years.
(8) A shares will hit 5,000 points, with the central bank determined to lift the stock market. The move is aimed at luring capital from the property sector into equities, which will offer new access for listed companies to raise capital through the stock market and in turn ease their tight liquidity.
(9) H shares may fluctuate and rally in the second half if the Fed launches QE4.
(10) Property prices in Hong Kong may continue a modest rally next year given low interest rates and new monetary easing in the US. Moreover, the bullish equity market outlook in the mainland, Hong Kong and the US will also lend support to the real estate market.
Translation by Julie Zhu
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