There are many global investment uncertainties: Greece and its negotiations with the Troika; an interest rate hike that has been in investors’ minds for months; oil prices and geopolitical instability in the Middle East. Will these ongoing issues impact markets in the second half of 2015?
Here’s what the investors are saying.
Mike Avery, portfolio manager, Ivy Asset Strategy
“The key issue that market participants and we as a team are wrestling with is how the markets will respond to a potential increase in the Fed Funds rate. This issue has been out there for some time, of course, and it’s probably the most widely anticipated issue, so it’s not so much a question of whether the Fed raises rates but the uncertainty associated with how the market reacts after seven years of zero interest rate policy,” he said.
“During that time, the bond and equity markets have become less liquid and the issue of liquidity combines with the associated concern of just how fragile the global economy is. No one can really be sure of what happens to a market that has been artificially supported. Could we see a situation where rates rise too soon, thereby resulting in a new recession? No one is quite sure and that’s a key question that will affect markets in the second half,” according to Avery.
“The other issue that we believe will weigh on the market for the next month or so and has implications for the second half is Greece’s negotiations with the International Monetary Fund and the European Central Bank. There’s a key date coming up at the end of June when the Greek government runs out of money — unless they subscribe to the Troika’s prescriptions. The market has been conditioned to believe that this argument will go back and forth till the eleventh hour,” he said.
“Finally, the situation in the Middle East and its potential impact on oil prices is, in our perspective, a third cause for concern in the second half. The situation is more dangerous because you have competing groups trying to carve out territory in a power vacuum. The region is very complex and since the U.S. now depends less than in the past on the Middle East for its oil supply, the market doesn’t worry as much about the impact of the tensions on oil supply. But with improved economics in the U.S. and in Europe, with China and India growing and Japan doing well, there’s a ton of demand for oil. Asia in particular depends on oil supplies coming directly from the Middle East, so the supply-demand equation is so tight that even a minor disruption will affect oil supply to Asia, which could then result in other issues at a time when the market is concerned about the possibility of a Fed rate hike,” Avery said.