28 October 2016
The renminbi's inclusion in the SDR basket is expected to accelerate the globalization of the currency. Photo: Reuters
The renminbi's inclusion in the SDR basket is expected to accelerate the globalization of the currency. Photo: Reuters

Top 14 events that shaped the 2015 financial landscape

We’re breaking down 2015 into 14 major financial events.

1. Global equity market turmoil

The global equity market caught the year’s last upswing after the Federal Reserve ended monetary easing. The mainland market reacted dramatically, with individual investors jumping in and inflating the market bubble. This prompted Beijing to review its policies and balance growth and risk.

2. Oil price slump

Global crude prices are expected to rebound to US$70 per barrel by 2020, according to the OPEC 2015 World Oil Outlook. However, the International Monetary Fund is forecasting further pressure on prices with Iran expected to resume production in 2016.

3. Emerging markets currency devaluation

The Fed’s recent decision to raise US interest rates will attract global capital to the US. China will be affected given the increasingly close link between the global economy and the financial markets. Capital outflow and currency deflation will be the two major challenges for many emerging markets in the next six months.

The US rate hike shows improving US growth, which has yet to be seen in other parts of the world. Commodity markets may face more downside, which would exert pressure on producing nations. A strong US dollar will continue to weigh on emerging market currencies in first half of next year.

4. Fed liftoff

The Fed liftoff came as expected. The US has gone through five rate hike cycles in the past 30 years. However, this cycle was different, with the Fed maintaining massive monetary easing and zero-rate policy for seven years. The Fed said future rate increases will be slow and gradual. The world’s largest economy is stepping into the tightening cycle, which is set to affect global capital markets.

5. Paris climate summit

Energy conservation and environmental protection have been a top priority for many countries. The Paris summit produced an agreement, which surprised many investors. Different nations have different interests. The agreement is set to change energy consumption, new energy development and national environmental protection programs. Different countries will need to undertake economic restructuring.

6. Breakthrough in TPP

The Trans-Pacific Partnership does not include China which has its own “One Belt, One Road” economic development strategy. The agreement is set to benefit TPP nations in terms of the economy and trade. 

7. Asia Infrastructure Investment Bank

The AIIB is closely linked to “One Belt, One Road”. Emerging nations need an independent financial institution to participate in infrastructure construction in Asia. It’s also part of Beijing’s efforts to internationalize its currency. The global use of the Chinese yuan will accelerate after it joined the SDR (special drawing rights) basket. AIIB would become a key platform for promoting the use of the redback through infrastructure, trade and business development.

8. IMF governance reform

The inclusion of the Chinese yuan in the SDR basket is a major step for IMF governance reform, which would give emerging markets a bigger say at the global lender.

9. Privatization of US-listed Chinese companies

A number of US-listed Chinese companies are looking to return to the domestic market, drawn by a market boom early this year. There are many incentives for such a move, not least the low valuations in overseas markets compared with the domestic market. These companies have paid a hefty price to list overseas but have received little reward. Also, they are facing tighter scrutiny from foreign regulators and shareholders.

10. Market frenzy for tech startups

A bubble has reemerged in recent years for technology startups. One in 10 or even 100 succeeds in the end. High valuation has to be supported by high growth. The alternative is failure.

11. Global M&A boom

Global liquidity remains abundant due to monetary easing in many countries. That has led to a boom in the M&A (mergers and acquisitions) market. Companies are looking for deals amid strong valuations. Also, M&A deals are expected to boost their balance sheets, creating opportunities for sustainable business growth.

12. VW emissions scandal

The German carmaker is engulfed in the worst scandal in its history after it admitted manipulating emissions test data on its diesel vehicles in the US and Europe. It’s a sign global economic growth remains subdued — companies are doing whatever it takes to win market share.

13. Greek default

The eurozone has been hounded by runaway debt for many years. Different nations in Europe have different positions, which would affect the euro, as well as efforts to sustain an economic recovery. The eurozone is still expanding monetary easing while the US has normalized its interest rate policy. The US has taken seven years to reverse an economic slump. The eurozone and the Asia-Pacific region could take at least seven years to turn things around.

14. Refugees in Europe

The refugee crisis is creating social tensions in Europe. The European economy is recovering slowly from the 2008 financial crisis and the eurozone debt blowout. The huge influx of refugees has put tremendous strain on the region. Meanwhile, the refugee issue is threatening social stability. Europe is scrambling to find a long-term solution.

This article appeared in the Hong Kong Economic Journal on Dec. 28.

Translation by Julie Zhu

[Chinese version中文版]

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Senior investment banker

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