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Global Stocks Will Continue Freefall

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Friday, 15 Jan 2016 12:01 PM Current | Bio | Archive


The World Economic Forum just published its yearly “Global Risk Report 2016,” wherein the economic, environmental, geopolitical, societal and technical areas are analyzed in the context of the risks they represent to the world.

Long-term investors who try to get somewhat better insights on “where we could be heading for” globally as well as regionally, and who try to take into account at least some of the “potholes” in the future when making median to long-term investment decisions could do well to take a look at the report, which is a vast report and to some degree not easy to grasp.

Limiting us here to the economic risks the world is facing, we see the following categories that have the potential of causing serious problems and, among other things, widespread loss of confidence and disastrous spikes in market volatility:

  • Asset bubble in a major economy;
  • Deflation in a major economy;
  • Failure of a major financial mechanism or institution;
  • Failure/shortfall of critical infrastructure;
  • Fiscal crises in key economies;
  • High structural unemployment or underemployment;
  • Illicit trade (e.g. illicit financial flow, tax evasion, human trafficking, organized crime, etc.);
  • Severe energy price shock (increase as well as decrease!);
  • Unmanageable inflation.

Long-term investors will have to do their homework with all the seriousness it deserves before taking investment decisions aimed at all time-spans if they want to avoid hitting that proverbial concrete wall that is out there and that could cost them dearly.

I don’t want to play the role of a doomsayer, but I only want to warn it is high time for all investors to become as realistic as possible, which is, believe me, easier said than done.

When IMF Managing Director Christine Lagarde recently said: “Global economic growth will be disappointing in 2016 and the outlook for the medium-term has also deteriorated,” in my opinion she warned all who wanted to listen there is serious trouble ahead, as well as for investors as for non-investors, everywhere in the world.

Meanwhile, the Baltic Dry Index, which is viewed by many as a leading global economic indicator, hit an historic and absolute low since its records began in 1985 suggesting “world trade” has practically come a “halt.”

U.S.- and U.S.-dollar based investors could legitimately ask themselves if all that factual negative news that keeps coming in from China, oil prices, continuously falling commodity prices, too low inflation, deflationary threats, world commerce, un- and under-employment, etc. if all that will in the end have a negative impact on the U.S. economy and markets.

The simple answer is “yes,” albeit the impact will be probably lesser for the U.S. as it will, by example, have on the eurozone.

I think investors could do well, at least for now, structure their expectations on the recent G-20 lower expectations.

In context of all the above and notwithstanding it could become sounding like a broken record, but all Chinese equity markets are today again deep in the red.

The Shanghai Composite Index closing at 2,900.97 Shanghai ended down 20.6 percent from its recent high on December 22nd and brings it, once again, in “bear” market territory.

Oil prices, Brent as well as WTI, both dipped again below the $30 dollar mark and hit hereby a new 12-year low. One of the reasons is international sanctions on Iran probably will be lifted on Monday, which should result over the coming months in an increased over-supply.

I think there is very little chance oil to rebound substantially, unless there is a geopolitical event, from its current levels. This is of course very bad news for literally all oil producers everywhere in the world for the very simple reason all producers’ breakeven prices are well above current levels.

Because of that single but extremely important fact, it is still too early to have a more or less precise idea about the negative impacts these low oil prices could, and probably will, have on economic, but also on geopolitical levels in very large parts of the world.

I’m convinced, but of course I could be wrong, overall markets have still an extended downward slope before them.

In the meantime, investors should probably better do not trying to catch falling knives.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
I’m convinced, but of course I could be wrong, overall markets have still an extended downward slope before them.
stocks, investors, oil, markets
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2016-01-15
Friday, 15 Jan 2016 12:01 PM
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