Outlook for 2015

There is one thing sure about the market’s outlook for 2015: It will be full of surprises.

The surprises will be brought about by several political and economic factors, some are of global magnitude, that are expected to unfold within the next 18 months.

Because these factors have recurrently affected not only the stock markets but of everyone’s ordinary life, they have also become familiar household topics, so to speak.

Risk factors

The combined effects of old and new geopolitical, religious and economic risks factors are seen as major catalysts in the behavior and direction of equity markets next year. Among these are the conflicts happening now in as far as Donetsk in Ukraine, Iraq and Syria and other parts of the Middle East and North Africa, in as close to our shores here in Southeast Asia, by falling oil prices and North Korea.

The conflict in Donetsk has resulted in the annexation of Crimea and control of the Crimean Peninsula which Ukraine calls an act of intervention to its sovereignty by Russia.

Only five UN states, including Russia, recognized the annexed territories as federal subjects of the Russian Federation. The others, particularly Nato-member states, still recognize Crimea as part of Ukraine. The situation has driven world powers to take sides.

Next is the conflict that started in Raqqa, Syria. Underestimated earlier as a mere sectarian religious conflict, it has transformed into a grand threat to world order and global stability. It has led to the rise of the Islamic State of Iraq and Levant or ISIS which aims to “become a global Islamic caliphate” to exercise absolute authority.

Adding complications are the renewed push by Islamic rebels in Libya, Nigeria and West Africa.

Then, we have the conflict in the Spratlys or the eight island-rocks in the East China Sea. The Spratly Islands is the subject of territorial disputes between the Philippines, China, Malaysia, Brunei, Taiwan and Vietnam. Except Brunei, the said countries have established physical presence on the contested islands.

The island-rocks in the East China Sea are the subject of dispute between China and Japan. These territories share the same economic and strategic reasons as the Spratlys. They are close to “important shipping lanes, rich fishing grounds and they lie on potential oil and gas reserves.”

Adding fuel to the tension is the relationship between Japan and China. “Japan and China have a long history of not getting along. These islands are also in a strategically significant position for military primacy in the Asia Pacific.

Since the conflict involves the biggest economies of the world, it is not hard to imagine that an actual dispute in the area can cause disruptions with serious economic repercussions.

There are also these so-called “wild cards” that could cause surprises to equity markets. One is the power vacuum the withdrawal of US troops may cause in Afghanistan and what India and Pakistan might do as rival powers in the region.

The others are the energy revolution in the United States and the decision of Opec to keep oil production steady, as well as Saudi Arabia’s decision to lower oil prices.

These developments are squeezing the economies of Iran, Russia, Venezuela and some African nations which rely heavily on oil export revenue. With scant sovereign wealth and currency reserves, they could fall to political instability that will have global impact.

Then, there is North Korea. While it is not considered an imminent threat, it remains an active live wire, as is shown in the hacking of Sony Studios a few days back.

Bottom line spin

In the Philippines, positive developments continue to outweigh negative elements. Business confidence and inflows of foreign direct investment continue to improve. With the latest announcement by Moody’s further elevating the credit standing of the country, it is anticipated that funds that will support both public and private projects will further rise.

With the pronouncement of the Federal Open Market Committee to be “patient” before implementing a program “to normalize” monetary policy, inflation and interest rates are seen staying within the government’s target ranges.

Robust private consumption and investment will drive economic growth. This will be complemented by the expenditures in the coming presidential elections and from the savings made from the continuing softness of oil prices.

The 44th World Economic Forum earlier described the global outlook for next year as “cautiously optimistic,” which I take to mean a market full of surprises and that will be profitable. In this connection, I recommend to buy on dips.

Merry Christmas!

The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com