International Equity Markets in 2014 and the Outlook for 2015

December 30, 2014

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Emerging-market equity returns were […] volatile and diverse, as significant gains in the spring and summer reversed into a downturn beginning in September. More recently the selloff had become widespread and acute, but there has been a bounce-back following the Federal Reserve meeting on December 17, which increased confidence that US interest rate increases were not coming soon. Economic growth in the emerging-market economies has slowed somewhat from 5.2 percent last year to a projected, still healthy 4.6 percent this year. Investors apparently feared a greater slowdown. Early in the year the emerging markets were hit by concerns of a slowdown in China that might become severe, by global economic growth that was also slowing and by the development of a secular bear market in commodities. More recently, while the slowdown in China appears to be modest and economic prospects in the advanced economies are looking brighter, even in Europe, a plunge in emerging-market currencies (other than the Chinese yuan) relative to the US dollar has raised concerns for countries with sizable foreign currency (largely US dollar) debt, much of which has been issued by emerging-market nonfinancial companies. This is the case for Russia, for example, where the ruble has plunged. The decline in the oil price is having mixed effects, crushing equity markets of economies dependent on oil exports such as the UAE and Russia while providing a welcome tailwind to oil importers such as India, Thailand and the Philippines.

Political developments also have been a factor this year in emerging markets, ranging from Russia’s annexation of Ukraine’s Crimea, a military coup in Thailand and protests in Hong Kong, to the more positive events of elections in India and Indonesia that brought in reform-minded governments. Toward year-end an important development affecting prospects for the Hong Kong and Chinese Mainland markets was the start-up of Shanghai-Hong Kong Connect, providing reciprocal market access to investors in both markets. This should be a positive for both markets going forward.


As we look forward to 2015, global growth should be somewhat stronger. Among the advanced-market economies, Europe should be advancing at a better, though still moderate, pace as the global manufacturing cycle recovers. Europe’s gains from lower oil prices will be modest, as it is not a heavy consumer of oil. Nor will the expected increase in quantitative easing have a great effect on the pace of economic activity, as it is weak credit demand—not a shortage of liquidity—that is the major headwind to growth. Nevertheless, earnings are improving as cyclical growth picks up, while cost pressures remain depressed. As the euro is likely to fall further against the US dollar, though at a slower pace, hedging against this currency factor will still be desirable. Japan’s economy and equity markets should advance further in 2015, and hedging against additional yen depreciation will also be desirable.

Emerging-market economies will continue to encounter the headwinds that have been evident since September, including the strengthening US dollar. China’s economy will likely slow somewhat further. Brazil’s economy may pick up somewhat from the current recession, but the growth certainly will not be robust. The same appears likely for Russia. India’s economy, on the other hand, is expected to accelerate, benefiting from both lower oil costs and economic reforms. The outlooks for Indonesia, the Philippines, Thailand and Taiwan are also positive.


The ideas and opinions expressed in this blog are those of the author, and they should not be perceived as investment advice or as any other kind of advice.

The preceding is an abridged commentary by Cumberland Advisors and has been reposted with permission. Cumberland Advisors commentaries are available at

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