Geo-Political situations /Investment Markets 2015

The investment markets of 2014 saw significant volatility during the year, particularly the last 6 months. With a General Election in May 2015, I am sure we will see some effects on UK growth whilst the UK heads to the polls as we exercise our democratic rights.

From a global perspective, the two issues that grabbed my attention were the significant thaw in relations between America and Cuba and the decline in Oil values.

I am sure the cigar smoking fraternity of the US will be delighted by the new alliance between the nations, with the potential prospects of better economic days ahead for many Cubans. Having visited Cuba many years ago, I was well aware of the significant effect of sanctions by the US on the country and this effect might provide a flavour of the discomfort that the Rouble and Russia are feeling at the time of writing.

Economically, North America as a trading area is performing well and its prospects for the future are positive (Not guaranteed).  The dollar as a currency also remains firm (again not guaranteed). We might even see the investment opportunity with the acronym ‘BRIC’s (Brazil, Russia, India and China) being renamed ‘BIC’s (Brazil, India and now Cuba).

The fall in the Oil price is more of a concern in the longer term. Although the full effects of the price reduction (about $60 a barrel at the time of writing) have not been felt at the pumps by consumers, these should filter through in the next few months.

One effect is the likely fall in inflation (as fuel costs continue to fall) to a level of Stagflation or Deflation. We have covered the details of these points off in our January Newsletter. If you would like a copy then please let us know. As Japan as a trading area knows only too well, deflation is not good for an economy, especially when sustained. (see our Blog from November 2014).

The other issue is that most oil production in the western world relies on an oil price per barrel of around $100 a barrel as a minimum. With market prices now well below that level, the profitability of production is bought into question. If sustained, some facilities will be closed or mothballed. It is expensive to restore these facilities and this cost will only be passed on.  Therefore, in the short term, the cost reduction that we pay for fuel is good news, but in the longer term, the consequences and cost could be significant. This could also see the investment markets suffering volatility because of the uncertainty of the future oil price.

Summary

As we move into the New Year of 2015, I hope these thoughts and views help in focussing the investors mind as to what could be ahead. Obviously, past performance is not a guarantee of future performance.

No individual pension/ financial advice is provided during the course of this blog.

If you would like guidance and advice on your income planning for the future then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.
We wish you a happy and prosperous 2015.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.