Financial Expats Market Update - 19th December 2007
As markets continue to react on an almost daily basis to the latest data and opinions on the extent of the sub-prime loans situation, what are some of the analysts' views for the medium to longer term as we head towards 2008?
Data from the Organisation for Economic Cooperation and Development (OECD) has indicated a moderate downturn in economic activity with a weakening outlook for the main seven economies. However, figures for major non-OECD member countries indicate the possibility of continued steady expansion in China, India and Brazil, although the outlook for Russia is reported to be weaker.
One complementary view is that emerging market equities could deliver double-digit returns in 2008, however, there is the cautionary comment that stock valuations will continue to increase. A key question appears to be how quickly emerging market stocks could move to a premium.
The positive sentiment towards the BRIC markets is supported by other comment that they will be the key driver of global economic growth in 2008. Growing consumer demand and schemes to improve infrastructure are seen as key elements of their continued expansion.
There is an expectation that Brazil will outperform China next year. While the Brazilian economy has endured a period of high interest rates, it is reported that rates will fall, which could benefit the stockmarket. In addition, strong export volume growth at more attractive margins is also expected to assist corporate performance.
Having increased by 12% in 2007, China's gross domestic product (GDP) is anticipated to grow by 8% to 10% next year. There is a similar expectation for GDP growth in India. Meanwhile, Russia's economy is expected grow by 8% in 2008, with higher oil prices compensating for weaker capital inflows.
Staying with oil, the price of a barrel of crude rose to USD91.45 per barrel following reports that Turkish troops had entered northern Iraq. A disruption in oil exports through Iraq's northern pipeline could send prices higher in the short term.
Longer term, there has been comment that supply and demand issues may well conspire to support an increase in the price of oil. While there have been recent discoveries of oil reserves in the Bay of Bengal and off Brazil, these are both reported to be deep and expensive to recover. In addition, demand for oil is likely to increase. For example, the Chinese domestic aviation market is growing at almost 30% per annum.
On the currency front, the yen has declined against the dollar and the euro following a move by the European Central Bank to add USD500 billion to the banking system. This has had the impact of encouraging investors to borrow in Japan to buy higher-yielding assets elsewhere. The yen fell to 113.33 against the dollar and 163.38 against the euro.
The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.
Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.
