Every January, Economists get asked what their predictions are for the coming year. This is a daunting task, and trying to predict where markets will end up at the end of the year is crystal ball gazing at its best. The reason is that there are so many variables to consider – a plethora of economic and political factors, not to mention ‘force majeure’ (act of god) risks such as environmental disasters.
For your own strategy, the best starting point is to look inwards: ie, what risk are you willing to take to achieve your goals in the short, medium and long term? You need to have a good understanding of where you sit on the risk/ return spectrum. Are you a conservative investor, aggressive, or somewhere in the middle? Only then can you be prepared for any eventuality. Once you have worked this out, can you structure a suitable portfolio. You can read more about risk and return on the MoneySmart website: https://www.moneysmart.gov.au/investing/investing-basics/risk-and-return
In the meantime, Political Monitor has put together a good summation of the top 5 political risks in 2015:
RISK 1: THE FRAGMENTATION OF EUROPE
As Greece flirts with a left-wing government that may drag the country out of the EU and Europe’s leaders continue to dither over the need for economic shock therapy it should become increasingly apparent to markets that the European project faces an existential crisis.
The rise of right wing parties is restricting the political options for Europe’s leaders as they search for a solution to anemic growth and a loss of confidence. And while Germany was thought to be the one country that could revive Europe’s economy it now battles its own economic headwinds as it faces up to its failure to enact any major economic reform during Angela Merkel’s reign.
In 2015 Europe will rattle markets and potentially take an irreversible step towards its disintegration.
RISK 2: RUSSIA AND THE WEST – NO ESCAPING HISTORY
Rather than an expression of Vladimir Putin’s tendency towards megalomania Russia’s intervention in Crimea and Ukraine, and its escalating tensions with the West are just the latest events in Russia’s historical pursuit of geographic security.
Western sanctions will not deter Russia from its pursuit of access to critical waterways and a buffer against the encroachment of NATO.
In 2015 don’t expect Russia to ease its support for dissidents in Ukraine or to succumb to Western pressure. As a result the Russian economy will come under further pressure as Western sanctions escalate. But there are also risks for the West as Russia seeks to build alliances with other countries keen to balance again the dominance of the US.
RISK 3: CHINA DATA – THE NUMBERS DO LIE
As China’s growth rate slows the accuracy of its economic data will become increasingly important as markets seek to understand both the nature and rate of the slow down.
Smart economists have always known that official data are a guide at best and that no country can forecast its economic performance with such accuracy year after year. In the good times this didn’t matter too much as buoyant growth lifted all boats. But as growth slows and China seeks to hide the extent of this slowdown the reliability of official data will become a much bigger issue for both global markets and geostrategic thinkers.
2015 will likely be the year when markets start to realise how little they know about China’s economic performance.
RISK 4: GOODBYE IRAQ – THE COUNTRY THAT NEVER WAS
Geographically, Iraq was never a country. Rather it was a political solution to the British Empire’s fading regional leadership in the aftermath of the Great War. Now in the wake of the West’s disastrous intervention, in which a Sunni regime capable of balancing against Shia Iran has been replaced with Iranian proxies, the country is drifting into civil war.
In 2015 markets will have to contend with the geographic and political reality that Iraq is in fact three countries – Kurdistan in the north with significant oil reserves; and Sunni and Shia regions in the south with some of the world’s largest oil reserves and critical access routes to the Persian Gulf and the Indian Ocean beyond.
The country’s complete disintegration won’t happen in 2015 but it will likely be the beginning of the end.
RISK 5: BATTLE FOR CONTROL OF THE GOP
In 2014 we forecast a resurgence of the moderate wing of the Republican Party and the emergence of Jeb Bush as a standard bearer for those Republicans who are in the business of winning. But while moderates performed strongly in the mid-term congressional elections and Jeb Bush is exploring a presidential bid the battle for the soul of the Grand Old Party is not over yet.
The Tea Party and its many off shoots across the country won’t give in without a fight. Immune to the pleas of big business donors and driven by the pursuit of ideological purity, Republicans will be engaged in a fierce battle throughout 2015 for control of the congressional agenda in the lead up to presidential primaries in 2016.
– See more at: https://politicalmonitor.com.au/content/political-risk-2015-five-risks-to-watch-in-the-new-year#sthash.gDWPxuTn.dpuf
Source: https://politicalmonitor.com.au/content/political-risk-2015-five-risks-to-watch-in-the-new-year
