I’ve made 10 “educated guesses” at the end of 2014 for the financial market in 2015. It’s time to review my guesses.
1. The US dollar will continue to strengthen: correct
The dollar index has continued to gain strength within the year and once even jumped by more than 10 percent. The US currency remains strong as the Fed has moved in opposite direction to other central banks.
2. The US may launch a new quantitative easing as economic recovery fails to sustain: wrong
The US economy expanded 2 percent in the third quarter, while the unemployment rate dropped to 5 percent. The Fed liftoff has arrived as expected amid a positive economic outlook. However, company earnings are showing signs of weakening. The US might fall into a recession in 2016.
3. Mounting deflationary pressure: correct
Global deflationary pressure has started to emerge due to plunging commodity prices and slowing economic growth. More than a fourth of the world’s 189 nations reported a lower consumer price index. And more than half of these countries have either low inflation or deflation.
4. US equities rally may end in second half of 2015: wrong
The Fed has delayed its rate hike due to financial market turmoil in emerging economies in the second and third quarter of this year. The Fed liftoff came at the end of the year as emerging markets started to stabilize. The S&P 500 index has been trading with huge volatility in 2015.
5. Oil price will continue to fall and a financial crisis may follow: correct
The crude oil price slumped to US$35.35 per barrel in December, and reported a loss of 40 percent for the year. The financial turmoil in mid-2105 is partly due to slumping commodity prices.
6. Massive capital outflow from emerging markets will weigh on local equities: correct
A number of emerging economies have suffered from falling commodity prices, and they are grappling with huge capital outflow. The Fed liftoff has even worsened the capital flight from these markets. The Bloomberg-JPMorgan Asia Currency Index (ADXY) and JPMorgan Emerging Market Currency index both touched historical lows. The MSCI emerging markets index has slid nearly 20 percent for the year.
7. China will continue monetary easing as economic growth moderates: correct
The Chinese central bank cut interest rates five times and reduced the reserve requirement ratio for banks four times during the year. Beijing has set the annual GDP growth target at 6.5 percent for the next five years, compared with 8 percent, 7.5 percent and 7 percent in previous years. China’s slower economic growth has been dubbed the “new normal”.
8. A shares still have good upside: correct
I noted in late 2014 that China’s A shares are likely to hit over 5,000 points in 2015. The Shanghai Composite Index has hit a peak of 5,178 points on June 12. But it then headed south and touched a trough of 2,850 points on Aug. 26 despite Beijing’s various market rescue measures. Nevertheless, the market started to regain some of its losses and posted a rally of 10 percent this year.
9. Hang Seng Index may trend upward in second half of 2015: wrong
The Hang Seng Index witnessed huge volatility in 2015. It once hit a peak of 28,588 points in the first half, buoyed by the market boom in the mainland. However, it gave up all the gains in the second half. The Hang Seng Index registered a 7 percent drop for the year.
10. Hong Kong’s housing market rally may run out of steam: correct
The Centa-City Leading Index soared to an all-time high of 146.92 points on Sept. 13, up 11 percent from the start of the year. However, housing prices started to weaken later in the year. The city’s secondary housing prices edged up 3 percent for the year.
This article appeared in the Hong Kong Economic Journal on Dec. 31.
Translation by Julie Zhu
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