The global financial market outlook for 2008 is, for the first time in a number of years, quite mixed, with pessimistic outlooks almost equalling the optimistic in the forecasts of many financial observers.
Perhaps the headline story for financial outlook this year is the continuation of the “credit crush” which afflicted the west and developed countries in 2007. This is likely to result in a significant slow down, if not a recession situation, developing in countries such as the US, UK and Japan. Certainly in the US and UK the housing market, where prices in the latter have been rising at the rate of between five and ten times income, is likely to see negative or minimal growth, with consumer spending likely to produce the same type of result. Thus there are likely to be more repossessions and business failures and the large retailers will be struggling to maintain growth. However, Europe as a whole is potentially in a better position to weather most of this year’s storms in these areas due to the mixture of economies that make up the regional market.
Against this rather gloomy outlook, we do not to set the economic growth of the emerging countries such as China and India, where the continual striving for prosperity and markets will see their position in the world order improve still further. Similarly, the Middle East is awash with money, which it is currently using to diversify its interests away from the oil dependency of the past. Therefore, it is likely that these countries will be very active in the global financial markets during 2008, continueing their current appetite for global expansion. Another positive is that the increasing interest in diverting away from fossil fuels and need for eco-friendly environments and processes is likely to offer significant investment opportunities in green areas.
Within the corporate sector of the global financial markets, the opinion is that the merger and acquisition activity will continue as corporations seek further globalisation of markets and consumers. However, due to the escalating costs of these deals, it is likely that the involvement of private equity funds will see a reduction. Nevetheless, as Trevor Green of UK Mid Cap points out, there are some large players still in the market. For example, Sovereign Wealth Funds have around $13 trillion waiting to be invested over the next ten years.
Most of the world’s stock markets will experience a bumpier ride in 2008 than they had in 2007. Whilst there will still be gains to be made, these are most likely to fall to investors who are more discerning in their choice of stocks and equities, rather than those who sit and wait for rises to occur or ride on the back of others. The banking sector is also predicted to continue to experience unrest, with the potential for more consolidation globally as it seeks to shrug off the credit crisis and financial institutions struggle to survive. Central banks will also come under increasing pressure in respect of interest rate control and have their role in managing economies tested.
As can be seen from the above, the predictions for the financial markets show a mixed bag of fortune. However, what is becoming apparent is that it will provide the opportunity for the countries like China and India to take further significant steps towards challenging and, in the not too distant future, overtaking the world’s current leading countries as they seek to become the world’s most powerful economies.