INVESTORS, EXPECT THESE GLOBAL ECONOMIC CHALLENGES IN 2016
What’s in store for investors this 2016?
Most investors considered 2015 a challenging year. Let us recall the events that transpired last year: plunging commodity prices, monetary policies to and fro, and declining stock markets. All of these led to market volatility. While analysts and investors hope for better market conditions this year, 2016 is no different from 2015 as traders will face more challenges along the way.
Commodity prices, specifically oil prices, continue its downfall. Although it benefits consumers, low gas prices affect energy companies that are struggling with lower revenues and sales. Firms that pay lucrative dividends are forced to slash dividends to free up cash flow, cut jobs to lower capital investment, and close some of their facilities. Such moves impact their stock prices.
In 2015, oil was trading about $37 a barrel in mid-December, bringing its decline to approximately 36%. Many nations rely on natural resources to earn revenues. Instead, they are experiencing economic contractions. Russia is projected to lose $2 billion in revenue for every $1 slide in crude oil price.
Last year, the eurozone endured economic difficulty and it might remain this year. The economy is still sluggish. In January 2015, the European Central Bank launched a quantitative easing program with a massive asset purchasing program to bolster the economy. Just last month, the central bank slashed the deposit rate to -0.03%, which led to a huge leap in the euro against the US dollar.
Greece greatly affected the region in 2015. The country has been experiencing a substantial debt crisis since 2009 and do not expect it to end this year. Prime Minister Alexis Tsipras and his Syriza party refuses to succumb to some of lenders’ demands. Many analysts hinted a potential Grexit, as there is a possibility the country may leave the European Union.
The country is on the verge of defaulting its debt obligations. This was almost averted when the ECB approved a third bailout agreement, but as of this writing, the debt issue Greece remains unsettled.
Slumping Chinese Economy
In the summer of 2015, stock market crash in China resulted in greater volatility in markets around the globe. The government has been shifting their focus from the industrial sector to the service sector. Chinese Premier Li Keqiang is targeting a 7% annual gross domestic product growth.
Figures for the third quarter of last year showed a slowdown in the manufacturing sector and some weakness in the service sector. Also, analysts and traders often question the Chinese data’s accuracy, making it harder to determine the real state of the country’s economy.
This year might be gloomier than expected for two reasons. First, there are looming concerns about China such as sluggish economic growth, debt problem, and stock market volatility. And second, the opening trading session of 2016 had a shaky start. Chinese stock markets plummeted 7%, which halted trading in the country around 90 minutes before the regular close.