Markets have been hugely turbulent of late. Buoyed by the on-going uncertainty over BREXIT, record low interest rates, falling commodity prices, and volatility in China. But what are the key things market participants should watch out for, and what opportunities are available to fund managers?
Panellists at FundForum International 2016 in Berlin acknowledge that on-going negative or zero interest rates are unsustainable. Likewise, Central Banks cannot keep spending their way out of trouble, as the long-term consequences will be unpleasant. As such, experts feel that major structural issues could arise at sovereigns if this path central bank profligacy continues. Whether or not it results in a Lehman Brothers moment is yet to be seen.
China may have dominated the headlines due to its market volatility and government imposed share trading suspensions but fears of a hard landing are overdone. Many analysts remain bearish on China yet the economy is growing fast, albeit not at a pace as years gone by. Advocates of a China resurgence feel the country has sometimes not engaged correctly with market participants, with some citing a lack of transparency, which can further increase volatility. Nonetheless, investors are looking towards China while fund managers sense an enormous opportunity in the country’s emerging middle class investor base.
Others feel the possible extension of Stock Connect – the exchange link – between Hong Kong and Shanghai is a cause for excitement. Market participants acknowledged in 2015 at NEMA Shanghai that the Stock Connect extension to Shenzhen would occur at some point in 2016 although precise timings were unavailable. At FundForum Berlin, many believe it will occur at some point before the year-end. The development would be exciting as Shenzhen’s stock exchange lists a number of small to mid-sized corporates. Whether Stock Connect is extended further afield is up for debate. The time-zone differences could pose practical problems for linkages with the UK, although there is nothing to prevent more regional linkages coming to the fray.
Emerging markets have had a setback over the last few years amid falling commodity prices, and fears that the Federal Reserve would increase interest rates. Commodities are recovering and the rate rise has yet to materialise. Some believe that an emerging market recovery is underway, citing major infrastructure investments that are currently happening in markets such as Thailand and Indonesia. These emerging markets could provide fund managers with potentially lucrative investment returns.