The Financial Risks For 2015

Although we are in the middle of the year 2015, but it’s never too late to have a look at some of the risks that the financial markets will face in this year. The top five of these risks are-

• Excess dollar strength-The volatility in the world markets would increase if dollar continues to rise against the world’s currencies at such a pace. A depreciation of other currencies will affect the emerging markets such as India by eroding returns from bonds and there would be a risk-off rally in equities. A further strengthening in the dollar will result in a more sell-off in commodities which would impact exporters such as Brazil and Russia which are also emerging markets.
• Increase in oil price- If the oil producing cartel brings down the production of oil by say a million barrels a day, then one can expect an increase in oil prices from this half of 2015.This will have a proportionate impact on balance of payments for countries which are large importers of energy such as India.

Earlier, there was a fall in oil prices by 40% which gave a stimulus to the Indian economy. But now, if the oil price spikes, it would impact emerging markets like India because then dollar will further become more powerful and the energy stocks will make a comeback.

• Liquidity black holes-The world’s financial markets for long have been resting on easy money. If any of the above risks comes into force or deflation becomes a more prominent risk for the world economy, liquidity might suddenly vanish. This is known as liquidity black holes. If this happens, then there would be a strong pullback for markets which depend on capital flows from outside.
• Global recession-. If the policies, the plans do not have the desired impact on growth or do not work out well, then recession may hit the global economy. In the short run, there would be risk-on risk-off mode in the market. Declining crude oil prices, weak performance of the Chinese economy and a sudden increase in interest rates by Russia is a burden for emerging markets and may lead to a global economic slowdown.
• Conflicting monetary policy –The fall in world commodity prices like oil, is leading to different impacts on different economies. Though cheap oil is good for the world economy at large, but a sudden fall could impact oil producers negatively and low prices would automatically lead to production cuts. This problem in commodity markets has already entered the currency markets. A number of oil producing economies look vulnerable like Venezuela, Russia and, to a somewhat less extent, Malaysia.

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