Date
13 December 2017
Russia could default for the second time in 17 years, after the ruble lost nearly 40 percent of its value. Other threats include China's credit bubble, leadership change at the European Central Bank and surging cocoa prices. Photo: Bloomberg
Russia could default for the second time in 17 years, after the ruble lost nearly 40 percent of its value. Other threats include China's credit bubble, leadership change at the European Central Bank and surging cocoa prices. Photo: Bloomberg

Beware of 10 Black Swans in 2015

Equity markets could be very volatile in 2015, and investors might be caught up in various Black Swan events.

Saxo Bank, a Danish investment bank, has listed the top 10 unexpected events that could roil the markets this year.

1. Russia defaults for the second time in 17 years, after the ruble lost nearly 40 percent of its value against the US dollar. The bank said the Russian economy is in the middle of a storm, which could trigger default not only by the state-owned firms but also by the Russian government itself.

2. Iceland’s Bardarbunga volcano explodes. Several small-scale eruptions about 150 to 500 meters beneath the ice sheet were noted in August 2014. However, a big explosion of the volcano could engulf the entire Europe with toxic sulfur dioxide.

3. Japan’s inflation surges to 5 percent. The Japanese central bank has been addicted to monetary easing, the Danish bank said, but the government has failed to boost economic growth with its money printing. The Bank of Japan might buy up to 60 percent of government bonds and other assets like stocks, which could trigger higher asset prices. A weaker yen would also make foreign goods more expensive and drive up inflation in the next few quarters.

4. European Central Bank president Mario Draghi quits, allowing his successor, Jens Weidmann of the Bundesbank, to carry out more aggressive quantitative easing. Draghi is setting his sights on Italy, where President Giorgio Napolitano wants him to be his successor.

5. High-yield corporate bond spread doubles and shock waves shake Europe’s weak economy. A shakeout would occur in the high-yield bonds space as the ECB won’t cover these bonds in its asset-purchasing regime.

6. Hacker attacks wreak havoc on online shopping. Giant e-commerce platforms might become the targets of hackers amid rising geopolitical tensions and the attacks could be endorsed by governments.

7. China devalues the yuan by 20 percent as deflationary risks loom, joining Japan in its fight to import inflation and demand. China’s credit bubble might burst and property sector collapse if its currency continues to stay strong.

8. Demand for cocoa continues to rise and the world consumes far more cocoa than it is producing, leading to record high prices of more than US$5,000 a ton.

9. British housing prices fall as much as 25 percent, following the impending Bank of England interest rate rise, as the real estate market loses steam.

10.  The UK Independence Party wins 25 percent of the national vote in Britain’s general election in May and joins David Cameron’s Conservatives in a coalition government. It calls for a referendum on Britain’s membership in the European Union in 2017 as British government debt suffers a sharp rise in yields.

This article appeared in the Hong Kong Economic Journal on Jan. 7.

Translation by Julie Zhu

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JZ/MY/CG

columnist of the Hong Kong Economic Journal

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