Five factors that shook the worlds markets in 2015
From the crisis in the financial markets in China to the mergers and acquisitions boom in the US, 2015 has been one of mixed emotions for traders and investors. In August, it looked as if the world was heading towards another global meltdown; but it hasn’t been that way yet.
The recent rise in US interest rates signalled that the world’s biggest economy might at last be coming out of the doldrums following the crash in 2008, but the repercussions for other countries and financial markets globally are unclear.
For all the worries about Greece and the eurozone, in the end concerns about the volatility of Chinese markets rocked global sentiment most during 2015, after the Shanghai composite index started falling dramatically, first in June, and then later in August.
On one tumultuous day in August the Chinese market fell 8.5%, its largest one-day drop since 2007, hitting share prices around the world, including the FTSE (down 2.8% to 6012 on the day), as investors feared that China’s economy was fast running out of steam.
Given the anxiety provoked by those sharp share price falls in China during August, it is perhaps something of a surprise that the Shanghai index is closing the year with a gain of 13%, even though it is around 30% down from its 2015 peak in June.
And despite the return to something approaching normality since August, worries about China continue to unsettle sentiment and markets. In one of the last trading statements of the year in London, the stockbroking group Panmure Gordon cited the crisis in China as one factor in its flow of deals drying up.
The City stockbroker is by no means the only business to have suffered headwinds from the fear that the world’s second-largest economy might no longer be travelling at full steam. Dozens of companies, including the UK luxurywear group Burberry, Japan’s Kobe Steel, logistics group TNT and the Danish shipping firm Maersk, also blamed China’s woes for hitting their profits.
Oil’s going down
The price of Brent crude, which was $116 a barrel in June 2014, dropped below $50 at the beginning of the year and has shown no signs of recovering. By the end of the year, the price of Brent crude touched 11-year lows of $36.05. Credit rating agency Moody’s has cut its oil price forecast for next year by $10, from $53 to $43 a barrel, due to continued high levels of supply that may be heightened by the lifting of sanctions against Iran and the US removing its export ban.
For West Texas Intermediate crude, the North American benchmark, Moody’s cut the forecast to $40 a barrel from $48.
The low price of oil has helped to reduce the rate of inflation in many of the leading economies and theoretically frees up demand for other goods. But the sharply lower price has also changed the economics for energy firms, putting Royal Dutch Shell’s £35bn-£40bn takeover of BG in jeopardy.
Year of the swissie
Switzerland’s central bank rarely raises its head above its snowy parapet, but early in January 2015 it caused an unprecedented shock when it unexpectedly abandoned a ceiling put in place three years earlier against the euro. So out of character was the move that the normally discreet Christine Lagarde, head of the International Monetary Fund, said she found it “a bit surprising” that she had not been informed. European central bankers were equally surprised. The euro immediately fell against the Swiss currency by 13.8%.
The ceiling was introduced in 2011 after the eurozone debt crisis saw investors piling into safer havens, such as Swiss assets. The fallout from its sudden removal proved too much for some.
Alpari, the foreign exchange broker, collapsed as a consequence of this and many of its clients being short of Swiss francs; and IG Index, a spread-better, said it was owed £15m by a group of clients caught out by the sudden rise in the Swiss currency.
Swiss finance minister Eveline Widmer-Schlumpf recently said she did not expect the central bank to impose a new currency cap for the strong Swiss franc any time soon.
The year of getting it together
A number of companies felt that 2015 was the right time to make a strategic move. Even Warren Buffett, the veteran US entrepreneur, chose to make 2015 the year of his largest-ever deal, a $32bn bid for American Castparts.
Global takeover deals, mainly originating from the US or the far east, broke records in terms of value, taking the total value of deals to $4.6 trillion in early December. According to data from Dealogic, there have been nine deals worth more than $50bn (£33bn) in 2015, five more than in 2014.
There was less activity in the UK, though London lay claim to two of the top four deals globally: Anheuser-Busch InBev’s $117bn bid for SABMiller and Shell’s $50bn tilt at BG.
US bankers seem to have taken the view that this was a good time to proceed with deals after two or three years of companies showing signs of strengthening after the financial crisis of 2008. Low interest rates contributed to determination to do a deal at a time when financing it might be more manageable.
The crisis in Greece during the first part of the year always threatened to create an unfolding of the eurozone and consequent volatility in global financial markets. But by the middle of August, as the country signed up to its third bailout plan, the pressure eased.
As the deal was signed after exhausting meetings, Jean-Claude Juncker, the president of the European commission, said: “The past six months have been difficult. We have looked into the abyss. But today the message of today’s Eurogroup is loud and clear: on this basis, Greece is and will irreversibly remain a member of the euro area.”
On that the jury is still out.