As we head into 2016, the team at Tamim thought we should put our heads together and come up with 7 strange yet quite plausible scenarios that the world could encounter through the next 12 months. Robert Swift, head of Tamim’s Global Equity Strategies puts the following 7 not so outlandish idea’s forward…
- US Election results in an isolationist President (no – not Donald Trump) who pulls back significantly from Asia, Europe & the Middle East. US defence expenditures balloon as other countries seek to demonstrate strength and the US seeks to send a signal to China and Russia. As a result US corporate tax rates are increased ubiquitously to pay for this spending.
- China’s attempts to boost regional infrastructure and invest in hard assets overseas meets with increased protectionism and a reluctance to sell “the family silver” to the Chinese. China refuses to merely invest in overseas government bonds since they have no inflation protection unlike real assets. Interest rates in deficit countries rise dramatically despite limited inflation as lack of buying reduces clearing prices. China effectively declares a “buyers’ strike” on continued high levels of bond issuance by certain countries.
- Saudi Arabia and Qatar endure deep recessions caused by a reduction in public spending made necessary by the continued decline in the oil price. Migrant workers are forced to leave and voluntarily embark to Europe causing further political repercussions.
- The Euro becomes untenable as unemployment rises further but instead of allowing a break up, the ECB argues for enforcing capital controls under article 66 of the Treaty of the functioning of the European Union. European equities and bonds slump.
- Emerging market countries running deficits debate imposing capital controls or a transaction tax on inward and outward financial capital. Foreign Direct Investment remains exempt. P/E multiples of Multi-National Companies rise dramatically since they become the only viable way to invest financial capital in certain Emerging economies.
- China A shares included in major global benchmarks resulting a stabilisation of Chinese share markets.
- Abenomics declared a failure and Japan opens its doors to large scale, targeted immigration in an effort to reduce its dependency ratio and improve public finances. Japan’s stock market rises dramatically as consumer spending rises, debt ratios improve, and new service sector industries are created which drives GDP forward.