Our current asset allocation stance is more cautious than a purely fundamental approach might dictate. Near-term market turbulence cannot be ruled out if a Greek tragedy erupts, or if the risk of political tension or corporate and sovereign default as a result of collapsing oil prices intensifies. Even with this in mind, we maintain a small risk-on stance, with small overweight preferences in equities and real estate.
Energy sector earnings linked closely to crude oil price
Source: Datastream, INGIM (December ’14)
Markets may be fearful of a new Greek tragedy
Fears of a new euro crisis may have been behind the biggest one-day decline in Greek equities since 1987, the day after Prime Minister Antonis Samaras moved forward by two months a parliament vote to choose a new president. The news sparked speculation that parliamentary elections will take place early next year. Greek 10-year bonds jumped the most since 2012 amid concerns about potential political instability in the nation.
Equities in China waver amid gloomy economic data
In China, equities showed big fluctuations as markets grappled with bleak economic data while the government formulated new economic reform targets at its annual Central Economic Work Conference in Beijing. Export growth in November disappointed, declining to 5% from 12%, with an especially sharp drop in shipments to Hong Kong. Import growth turned negative, falling to -7% from +5% in October.
Oil falls below $60 a barrel after IEA cuts demand outlook
Crude oil continued its plunge as West Texas Intermediate dropped below $60 a barrel to a five-year low. Following the Organization of Petroleum Exporting Countries (OPEC)’s November 27 decision not to shore up the price by reducing output, the International Energy Agency (IEA) lowered its forecast for global oil demand next year and increased its projection for non-OPEC production.