Commodity and oil prices are likely to fall this quarter, with global bourses set to remain volatile as downside risks build on the horizon, several foreign finance institutions said on Thursday.
In the backdrop, signs of stable recoveries in the US and China will likely lend support to the greenback and the yuan, although the latter is going slower than expected, they forecast.
Growing concern over a slowdown in the eurozone and in emerging economies, plus a strong US dollar and a well-supplied oil market have contributed to the weakening of many commodity prices since the summer.
HSBC Holdings PLC and Citibank Inc expect prices of most commodities, particularly oil, to remain weak this quarter and throughout much of next year.
The forecasts came after the World Bank’s energy price index declined about 6 percent last quarter, after holding virtually steady in the first half of the year.
“Looking ahead, the downside risks outweigh any potential upside surprises in the global economic landscape, with the US likely to be the sole exception,” said Steve Chuang (莊懷德), vice president of wealth management at HSBC Bank (Taiwan) Ltd.
Chuang said that the US Federal Reserve may end its quantitative easing measures this week, deepening speculation over the timing of the central bank’s interest rate hikes, adding that global funds are expected to refrain from making reckless moves until they can dissect the Fed’s statements.
Expectations of a rate hike have failed to widen yield spreads for US government bonds that have seen fast fund inflows driven by risk-hedging needs, Chuang said.
The trend is likely to last into next year and shore up the greenback against other major currencies and investment tools, he said.
As for commodities, Brent crude prices have slumped more than 20 percent this year, while those of iron ore and some dairy products have fallen by about 40 percent and 30 percent respectively since the beginning of the year.
The national currencies of big commodity exporters, such as Australia, have also suffered against the US dollar this year.
However, lower commodity prices suggest lower production costs and bigger corporate profits, which would help support US shares amid a rash of sporadic market corrections, Chuang said.
Citicorp Securities Investment Consulting Inc (花旗投顧) vice president Spencer Wang (王進彰) also said that the world economy faces greater uncertainty due to a weaker Europe and Japan, as well as because of a lackluster China.
However, the US securities house said it is positive about the greenback and believes that a slowdown will help China pursue better economic health in the long run.
Over the years, China’s exports have outpaced its GDP growth, which in turn has outperformed rises in household income, Wang said.
“An economic slowdown will allow household income to catch up and narrow the gap,” he said.
Experts say that balanced development is important for China as it may not enjoy its demographic bonus for long.
A demographic bonus is generally defined as when the proportion of dependents in a country’s population is much lower than the number of working adults. This economically favorable ratio is estimated to last about two to four decades and many analysts predict that China’s demographic dividend will end at a some point next year.
All things considered, the yuan could continue to gain value during the course of internationalization, although the pace at which it does so may slow down somewhat, Wang said.
Standard Chartered Bank expects that Beijing will make more aggressive moves later this year to boost the country’s GDP growth.
“The fast-growing property inventory in many Chinese cities merits the use of stimulus measures,” Becky Liu (劉潔), a Hong Kong-based researcher for the British banking group, said in Taipei on Thursday.
Additional reporting by staff writer
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