Invest
Weapons testing and Chinese debt on the menu for 2018
Investors should buckle up as potential geopolitical shocks, debt mismanagement and higher inflation are set to pose risks in 2018, a Swiss bank has said.
Weapons testing and Chinese debt on the menu for 2018
Investors should buckle up as potential geopolitical shocks, debt mismanagement and higher inflation are set to pose risks in 2018, a Swiss bank has said.
According to the UBS 2018 House View, there are three prominent risks for investors. While a recession “looks unlikely” UBS warned that tightening monetary policy as well as political volatility, growing rates of technological disruption and sustainability concerns will “each bring their own set of opportunities and risks”.
Higher inflation could force central banks to tighten policy
“In our view, two circumstances could arise that might prompt central banks to act more boldly: a dramatic change in how members interpret economic data and an unexpected surge in inflation,” UBS said.
However, an “abrupt change in philosophy” appears improbable, UBS continued, noting that most regions haven’t seen any major changes in central bank personnel.
“When it comes to inflation, a sudden rise cannot be ruled out. A sharp climb in oil prices, owing to a supply outage in the Middle East, is one outside risk.
“Another, and arguably greater, risk comes from the possibility of wages and prices increasing in the US,” UBS continued.
Noting that the 4.1 per cent US unemployment rate is not far from a post-1970s low, UBS said a trigger for higher inflation could occur if companies face such difficulty in attracting staff that they are forced to raise wages.
If this process occurs too rapidly and sharply, then central banks could respond by also raising interest rates.
“This would amplify the risk of recession – every US downturn in the past 45 years has been preceded by a steep Fed rate hike cycle.”
Nuclear weapons testing in North Korea, political instability in the Middle East
According to UBS analysts, North Korea’s nuclear testing program raises both the risk and consequences of a miscalculation.
They explained: “Test missiles could miss their intended neutral targets, or North Korea could miscalculate the location or intention of US warplanes, which regularly conduct exercises in the region.
“The potential threat to Japan and South Korea, the world's third and eleventh-largest economies, respectively, means any conflict, or fear thereof, could have global consequences.”
Additionally, as tensions between Saudi Arabia – the world’s largest oil exporter – and Iran increase the risk of a disruption to the oil sector. UBS said conflict has the potential to unsettle energy export agreements and processes and could push oil prices up to US$80 a barrel for up to six months.
Will China mismanage its rising debt?
UBS said there are two reasons markets should potentially be wary of a Chinese debt crisis.
The more likely trigger is if one or more credit crunches occur at a regional level, and at a smaller-scale.
The analysts explained: “Some sectors have significant overcapacity issues, and several large Chinese companies in the insurance, real estate, and aviation sectors are already showing initial signs of credit problems.
“If clusters of credit defaults begin to form and fears of default arise in wealth management products, there would be concerns about contagion into the wider economy.”
Should this occur, UBS predicts the Chinese government will have the resources required to “prevent widespread contagion”, but global financial markets will not be able to avoid increasing volatility.
“The second potential route is if the government miscalculates and takes steps toward capital account liberalisation, a move that could backfire and spark a renewed spell of capital outflows from the country,” UBS continued.
They said if China ran short of reserves and so was required to “significantly devalue” its currency, global concerns would increase as a devalued currency could potentially impact companies that supply goods to China.
“Again, we believe that the Chinese government is likely to be able to contain this risk through targeted regulation, as it has before, but market concerns cannot be ruled out,” they concluded.
Property
RBA’s 30% property growth forecast to materialise in 75% of regions
Experts believe that RBA’s forecasted 30 per cent growth in property prices over the next three years will materialise in 75 per cent of Aussie regions. ...Read more
Property
HomeBuilder applications soar as first-timers enter the market in record numbers
Record numbers of first home buyers are coming into the market assisted by the government’s HomeBuilder stimulus, which is expected to help spur $50 billion in economic activity. ...Read more
Property
Dual Occupancy Homes – Why They Are A Smart Investment In The Current Market
Promoted by Metricon ...Read more
Property
4 factors affecting property market trends in 2021
Following a tough 2020, property investment activity is expected to rebound strong, expanding by 50 per cent in the second half of 2021. ...Read more
Property
House prices tipped to surge 30% on the back of cheap money
According to new documents released from the Reserve Bank of Australia, persistently low interest rates could push up property prices by as much as 30 per cent. ...Read more
Property
Double-digit price growth to stick around as ‘property boom’ arrives
According to leading indicators, Australia’s property boom officially began in November, following several slow months on the back of the COVID crisis, with double-digit price growth already logged ...Read more
Property
How to turn your ‘costly’ lifestyle investment into a money-making asset
Emotionally driven holiday home buyers are being advised to seek maximum rental income and depreciation benefits to make their investments viable. ...Read more
Property
Dutch e-commerce giant VidaXL ramping up Australian operations
Netherlands-based online retailer VidaXL is ramping up its operations in Australia, by launching the build of a brand new 81,000 sq m national distribution centre in Melbourne. ...Read more
Property
RBA’s 30% property growth forecast to materialise in 75% of regions
Experts believe that RBA’s forecasted 30 per cent growth in property prices over the next three years will materialise in 75 per cent of Aussie regions. ...Read more
Property
HomeBuilder applications soar as first-timers enter the market in record numbers
Record numbers of first home buyers are coming into the market assisted by the government’s HomeBuilder stimulus, which is expected to help spur $50 billion in economic activity. ...Read more
Property
Dual Occupancy Homes – Why They Are A Smart Investment In The Current Market
Promoted by Metricon ...Read more
Property
4 factors affecting property market trends in 2021
Following a tough 2020, property investment activity is expected to rebound strong, expanding by 50 per cent in the second half of 2021. ...Read more
Property
House prices tipped to surge 30% on the back of cheap money
According to new documents released from the Reserve Bank of Australia, persistently low interest rates could push up property prices by as much as 30 per cent. ...Read more
Property
Double-digit price growth to stick around as ‘property boom’ arrives
According to leading indicators, Australia’s property boom officially began in November, following several slow months on the back of the COVID crisis, with double-digit price growth already logged ...Read more
Property
How to turn your ‘costly’ lifestyle investment into a money-making asset
Emotionally driven holiday home buyers are being advised to seek maximum rental income and depreciation benefits to make their investments viable. ...Read more
Property
Dutch e-commerce giant VidaXL ramping up Australian operations
Netherlands-based online retailer VidaXL is ramping up its operations in Australia, by launching the build of a brand new 81,000 sq m national distribution centre in Melbourne. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
