The new year began with a sharp drop in the equity markets, a depreciation of the yuan and another closure of the Chinese market, a repeat of last August. The same fears have reared their heads: a collapse in US and global growth, a hard landing of the Chinese economy, inappropriate monetary tightening by the Fed, a complex geopolitical situation… The list goes on!
As the new year begins, it is worthwhile recalling current major trends. 2015 was a year marked by economic downturns and the further decoupling of the emerging countries from the advanced countries and of the United States from the Eurozone (in the area of monetary policy). 2015 was also a year of greater volatility, sharp exchange rate fluctuations, a further collapse of commodity prices… and an uptrend in credit spreads. Admittedly, rates have remained low and so have the spreads of the peripheral countries of the Eurozone; but the situation for corporate bonds, hurt by widening spreads and less liquidity, has become more complicated.
Overall, all of the major identified risk factors materialised in 2015 to varying degrees, which undoubtedly made it a pivotal year: a European crisis, an emerging markets crisis, concerns about world growth, concerns about a hard landing for China, the return of volatility, specific risks (Russia, Brazil, etc.), a further drop in commodity prices, sharp exchange rate realignments and fears of a currency war, geopolitical risks.
In particular, since the beginning of 2016, two of these themes (commodity prices and China) have come back to the forefront. In the present note, we explain why our broad views have not materially changed over the past few weeks.