Volatility increased in in the first weeks of 2015 amid concerns over the sustainability of global economic growth, the disinflation trend and the effectiveness of policy making. Renewed political drama in Greece and fears over the fallout of the sharp declines in oil prices seem to have been the most immediate drivers of recent market turmoil, but lingering discussions about the desirability of the ECB’s quantitative easing program also added to the fragility of the current environment.
World forward price-earnings ratio is above 10-year average
Source: Thomson Reuters Datastream ING IM (1994-2015)
Global economy may expand at 3%
The global economy follows a positive trend at the start of 2015. It nevertheless reflects a marked divergence between an improvement in developed economies and a slowdown in emerging economies. Developed economies are seeing fading uncertainty and economic policies intended to support economic activity. Emerging economies on the other hand are being negatively impacted by significant imbalances and lower commodity prices. Overall, the global economy should grow by 3.0% in 2015, slightly higher than the 2.9% expansion seen in 2014.
Current confusion may offer another buying opportunity
Global equities started 2015 in a hectic and volatile way. A combination of fears around the outcome of the Greek elections on January 25 and the continuation of the fall in the oil price kept investors nervous. We are of the opinion that lower oil prices, a stronger dollar, further monetary policy easing and potentially an overreaction to the Greek political situation make the current correction look once again as an opportunity to buy the dip.
Risk aversion, inflation expectations send yields to record lows
Yields on the ten-year US and German government bonds fell in January to new lows. Bunds and Treasuries are clear beneficiaries in times of rising risk aversion. In January, the decrease in US yields took place against a background of market concerns about falling inflation expectations and strong demand from institutional investors. In the euro area, the ECB’s policy, the weak economic momentum, the downward trend of inflation expectations, the fall in oil prices and the persisting high demand from institutional investors led to ongoing downward pressure on bond yields.