Monday, December 29, 2014

More volatility next year 2015 says Bob Janjuah


I will write a 2015 outlook note in the new year. I am still thinking about the key issues, namely global growth weakness and the disinflationary and deflationary winds blowing through the global economy, and how these key twin factors will affect global policy and global markets. 

For now I continue to believe that four very strong deflationary factors are driving things – global indebtedness levels (which have gone UP since the financial crisis), demographics (rapidly ageing populations pretty much everywhere other than sub-Saharan Africa, the Middle East and, notably, India), technology (which is significantly disinflationary) and globalisation (whereby the average global worker has little or no pricing power).

As such, and with the above caveat that I will present my full views and thoughts early next year, as of now I see 2015 as more of 2014. Namely, a stronger USD versus the world, lower bond yields and flatter yield curves with long duration assets in core government bonds markets offering the most value, and much more volatility (I expect to see increased year-on-year volatility in 2015). 

This volatility should make equities an unattractive place to be particularly on a Sharpe Ratio basis (2014 has been bad enough, but 2015 will I think be even worse). And in credit markets it will mean being much more invested in the highest quality assets and much less invested in the riskiest parts of the credit markets – namely USD EM credit and the US high yield market owing to the significant concentration of issuers and issuance in the vulnerable energy and energy-related sectors.