The market trends of 2015 are largely driven by events that occurred last year. Those events will continue to shape the economic and market trends as they unfold this year. So what are some of the trends that we will see this year?

Collapse of oil prices

The price of oil collapsed by about 50% over the second half of last year. Unlike past declines, the fall in oil prices was not led by a global economic slowdown. In fact, most economies continued to grow last year. The broad consensus is on prices staying stable in 2015 at more realistic long-term levels of $50 to $60 per barrel. The drop in oil prices will provide a tailwind to growth across the globe, raising real income levels for consumers, thereby increasing consumption.

pic

Low Inflation

Global investors are betting on low inflation across all investment destinations. The fall in oil prices will spread across to what the consumer pays for products and services. In the developing world, the fall in prices will keep inflation in check, while in the developed world, low interest rates will help to sustain low inflation. Bond prices show that the global outlook for inflation is around 2.1%, down from 2.65% last year.

Emerging investment hotspots

For the past 10 years, the BRICS block has been the economic engine for global growth. With growth slowing down in Brazil, Russia and China, new investment destinations like the Middle East and northern Africa will attract fresh investments. Investments will increasingly be channelled to emerging hotspots like Kenya, Egypt, Poland and Turkey. Even small economies such as Lebanon will benefit. Lebanon is a fast growing, service based economy and is also the banking capital for the surrounding region.

Large multibillion-dollar investment companies like M1 Group have roots in Lebanon and have contributed to growth of the region. Promoted by brothers Najib and Taha Mikati, the company traces its roots to Investcom, a telecom company that the brothers sold in 2006 to MTN of South Africa for $5.5 billion. Najib Mikati has been prime minister of Lebanon twice, and has played a pivotal role in developing the economy of Lebanon. You can learn more from Azmi Mikati’s Columbia profile.

pic

Strong dollar

Stability of growth in America, coupled with a weak Eurozone will continue to keep the dollar strong. In 2014, the European Central Bank and the Bank of Japan tried to stimulate growth and fight deflation in their countries, while the Fed signalled higher rates and tighter money control, thereby making the dollar more desirable. The dollar is enmeshed in the infrastructure of the global economy and a tightening of supply is akin to a rise in interest rates for economies that borrow in dollars. These ripples will need to be watched closely.

By understanding the implications of these trends, we can track the flow of capital. Capital always flows to destinations that offer good returns. The broad signs mentioned above are important when evaluating the macro economic trends for 2015. In many ways, 2015 will be a phase of consolidation after the tectonic changes that occurred last year.