International equity prices corrected during the month as fears about the negative economic and political fallout of the steep drop in oil prices on energy producing countries unnerved investors. Brent crude oil prices fell to a six-year low during the month, a decline of more than 50 percent in four months. Major oil producers such as Russia are already facing economic recession while large commodity exporters such as Brazil are likely to see weaker economic trends for a longer period. Meanwhile, in the Euro-zone, while economic trends remained relatively soft, the European Central Bank did not announce additional quantitative easing measures as expected by some investors. At the same time, expectations about a U.S. Fed rate hike strengthened after third quarter U.S. economic growth was revised higher. European markets such as Portugal, Italy and Spain underperformed the most during the month.
Emerging markets also declined during the month as investors continued to move out of countries that are heavily reliant on energy and commodity exports. Russia, Brazil and Colombia receded the most, while concerns about renewed political instability dragged down Greece. On the positive side, China continued to outperform as investors remained confident that the country’s economy could sustain the current pace of growth. Global manufacturing activity continued to expand during December, but at a slower pace when compared to the previous month. Output growth in the Euro-zone moderated further while Japan saw modest gains. Among the emerging countries, factory production stagnated in China and weakened in Indonesia, Brazil and Korea. Output growth accelerated in India, where the economy is seeing a moderate revival, and also in Mexico, which is one of the major beneficiaries of stronger U.S. demand.
Near-Term Outlook
While aggregate economic growth in the Euro-zone remains below expectations, there are modest signs of improvement in recent data. Retail sales in the Euro-zone rose for the second month in November, helped by lower fuel prices. Consumer confidence saw further gains in December, aided by cheaper oil and the modest improvement in labor markets. The unemployment rate in the broader 28-country EU region improved to 10 percent in November, and 11.5 percent in the common currency Euro-zone. Countries such as Spain and Greece that were the worst hit by the region’s fiscal crisis saw the most improvement, though the rate worsened in Italy. The unemployment rate in Germany fell to new record lows as youth unemployment also saw modest improvements in the region. Though seasonally adjusted exports declined marginally in October, when compared to the previous month, the trade surplus widened as imports weakened at a faster pace.
In Japan, retail sales are yet to see a meaningful recovery after the sharp decline triggered by tax hikes during the second and third quarters of 2014. Retail sales saw modest declines in October and November, belying expectations of an early revival. However, consumer sentiment was likely hampered by the unexpected elections to the country’s parliament in December. As the incumbent government of Prime Minister Abe has retained power, and also helped by lower fuel prices, consumer sentiment could improve in 2015.
This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
(c) Thomas White International
