Efficiency 2015 Annual Report

Not the Easiest Year

Leonīds Aļšanskis, Senior Financial Markets Analyst at ABLV Asset Management (IPAS), talks about events in the world economy and the fulfilment of specialists’ expectations in 2015.

The past year appeared to be quite complicated for both the global economic system and the world’s financial markets. Given the increase in the pace of the growth of the global economy from 3% in 2013 to 3.4% in 2014, the world’s economic process was expected to continue accelerating. At the end of 2014, the IMF forecast that global economic growth would reach about 3.8% during 2015. According to the expectations of IMF analysts, this higher figure would reflect more significant growth of developing economies against a backdrop of the stable growth of developed ones.

However, the economic situation turned out not to be as advantageous as forecast, and in 2015 developing economies demonstrated weaker growth than in 2014. In China, the annual GDP increase amounted to just 6.9% in 2015, in contrast to the corresponding figure of 7.3% in 2014. As a result, recorded GDP growth dipped below 7% for the first time since 1990. In Russia, GDP dropped by 3.7%, whereas in 2014 it grew by 0.6%. Meanwhile, the BRICS economy grew by approximately 4.5%, whereas its increase in 2014 amounted to 5.2%. The contribution of developing economies to the world’s GDP (calculated in US dollars) was also reduced by substantial devaluation of a number of leading developing currencies.

Meanwhile, the world’s two largest developed economies managed to demon­strate good GDP growth in 2015. In the USA, just as in 2014, it amounted to 2.4%, while in the euro area, the pace of economy growth rose to 1.5% from 0.9% in 2014.

In general, according to the latest estimates from the IMF, in 2015 the global economy grew by just about 3.1%, whereas the World Bank estimated that this growth would equal 2.8%.

In 2015, price movements on the global financial market were substantially affected by “hot” topics of the year, as well as by the economic situation.

In 2015, price movements on the global financial market were substantially affected by the year’s “hot” topics, as well as the economic situation. The attention of market participants was mostly focused on the activities of two leading central banks — the ECB and FRS. In March (following the corresponding announcement in January), the ECB finally launched a large-scale QE programme to stimulate lending and inflation in the euro area. In contrast, the US FRS made preparations for tightening the monetary policy throughout the year. However, the refinancing rate, which had been maintained at record-low level of 0–0.25% for seven years, was only increased in December 2015.

During the first half of the year, the Greek crisis remained a very “hot” topic, because it threatened to severely destabilize the situation in the whole euro area. Fortunately, an acceptable agreement was reached to end the crisis. The decision made by the IMF at the end of 2015 to include the yuan in the list of the world’s reserve currencies was an important event for the global financial and economic system. It confirmed recognition of the Chinese economy’s achievements in developing the global economic process.

However, markets in 2015 were negatively impacted by a series of events related to terrorist attacks and the influx of refugees into Europe, the increase in the activity of ISIL in Syria and Iraq, and the confrontation between Russia and Turkey resulting from the shooting down of a plane.

Responding to all these processes and accumulated internal imbalances, the global financial market was very nervous and volatile in 2015, experiencing intermittent price surges and drops, while a decline in prices definitely prevailed for commodities, as well as for the currencies of emerging countries. The financial markets of oil-producing countries were also struck by the continuing substantial decrease in oil prices during 2015, as prices fell below the minimum values of the crisis in 2008.

However, at the beginning of the year, there were no signs of those problems, and the global stock market started the year demonstrating confident growth. Moreover, in Q1 many leading indices, including the world one, reached new historical maximums several times. Nevertheless, in April–May the market experienced a correction in the form of a fall in prices, which became particularly pronounced in August–September, and the leading indices were therefore pushed below their maximums by 10–30%. A rapid drop in the prices of Chinese stocks, as a result of which the indices lost almost 50% of their value during June–August, caused much noise and trouble on the global market. Consequently, global stock index MSCI WD ended the year with a decline of 2.7%. This was the second instance after 2011 of the stock market closing the year with a decrease, having demon­strated powerful growth since 2009. The emerging market index MSCI EM declined much more in 2015, losing 17% — mostly because of a substantial decrease in the rates of emerging currencies against the US dollar.

For the global bond market, the year turned out to be very complicated and volatile. Strong growth in the prices of government bonds of euro area countries at the beginning of the year (following the QE programme announcement by the ECB) resulted in the negative yield of all German bonds, including 9-year ones, in the middle of April. However, an even stronger decline in prices and increase in yield of these bonds followed (the growth of 10-year ones ranged from 0% to 1%!). Such deformation and volatility of the market, which is considered to be a “safe haven” for investments in euros, greatly complicated the management of even the most conservative investment portfolios.

2015 was also a very difficult year for commodities markets, especially those in precious metals and oil, where prices fell from 11% for gold to 29% for palladium and 35% for oil.

Many leading developed and developing currencies around the world demonstrated a similar decline against the US dollar, ranging from 10% for the euro and yen to 20% for the rouble and 33% for the Brazilian real.

All this significantly complicated investment operations on the financial markets last year. However, experienced investors were able to overcome those difficulties and demonstrate good results in 2015. This is absolutely true for the specialists managing our bank’s investment portfolio.

Table of Contents

Creative team: Arnis Artemovičs, Ernests Bernis, Jānis Bunte, Anna Celma, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Samanta Priedīte, Jūlija Surikova, Romans Surnačovs
Project managers: Anna Celma, Jūlija Surikova
Interviews: Jānis Bunte, Ingrīda Drazdovska, Konstantīns Gaivoronskis, Katrina Gordejeva, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Romāns Meļņiks, Sergejs Pavlovs, Romans Surnačovs, Jānis Šķupelis
Text authors: Leonīds Aļšanskis, Jānis Bunte, Anna Celma, Vladislavs Hveckovičs, Jānis Grīnbergs, Māris Kannenieks, Ļubova Kazačenoka, Jekaterina Koļesina, Zane Kurzemniece, Aleksandrs Pāže, Gints Pumpurs, Dmitrijs Semjonovs, Jūlija Surikova, Kaspars Vanags, Benoit Wtterwulghe
Photography: Arnis Artemovičs, Uldis Bertāns, Mārtiņš Cīrulis, Ieva Čīka, Krišjānis Eihmanis, Andrejs Hroneloks, Alise Jastremska, Valdis Kauliņš, Valts Kleins, Marks Litvjakovs, Sergejs Mazurs, Reinis Oliņš, Samanta Priedīte, Gatis Rozenfelds, Polina Viljun, LETA foto, Marka.photo, Studija F64
Proofreader: Jānis Frišvalds
Translators: Jekaterina Koļesina, Nataļja Malašonoka, Lidija Marsova, Jūlija Surikova
Design: Aivis Lizums, Valters Horsts

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