Nomura Research highlights possible ‘grey swans’ in 2019
KUCHING: Nomura Research’s analysts have highlighted several ‘grey swans’ or events that could have a more drastic impact than expected in 2019.
In a report by CNBC, Nomura Research was quoted as saying: “None of these are our base case, and instead are more an exercise in forcing us to think outside our usual base scenario-risk modes of thinking.”
Some of its ‘grey swans’ include a low probability that another oil slump may be on the road, due to excessive supply, shifting consumer preferences and environmental considerations,
Nomura noted, however, it’s “plausible” that oil prices drop as low as US$ 20 per barrel in 2019.
Aside from that, CNBC reported that Nomura’s analysts had pointed out oil prices have a recent history of moving from boom to bust and in ways that oil analysts have not expected.
They fell to a 13-year low of around US$ 26 per barrel in January 2016 from US$ 60 per barrel in June 2015 and US$ 100 per barrel in June 2014, it added.
“Currently, there is arguably a big glut in the oil market, partly thanks to rising oil production in the US.
“Less production restraint from Iran of late, combined with lingering tensions between Opec and Russia supply responses could leave that oil glut larger for longer in the period ahead,” it said.
Aside from that, CNBC reported that Nomura Research expected mini market quakes in 2018 — the emerging markets currencies collapse, trade wars, Brexit and US stock correction — to be precursors for a big one in 2019.
There are three possible market quakes, according to Nomura: a collapse in stock price, a contagious sovereign crisis in Europe and Chinese defaults.
It cited US stock valuations, Italian sovereign risk and China’s mountain of private debt as the catalysts.
“In such an environment, cash would likely be king, risk markets would underperform and safehaven currencies such as the yen would do well,” Nomura wrote in the note.
“It’s easy to paint a picture of a market crisis in 2019, market liquidity conditions worsening with lingering effects of Fed hikes and continued balance reduction, the European Central Bank and Bank of Japan scaling back their quantitative easing measures and China continuing its deleveraging policies,” it added.
Populism may also have reached its peak in 2018, Nomura noted.
This political approach, made prominent by Chinese President Xi Jinping’s corruption crackdown and the centralisation of power, has been adopted around the world — by US President Donald Trump, Brexit forces, President Erdogan of Turkey, and President Putin of Russia, Nomura said.
But the world might start to realise populists fail to deliver growth, CNBC quoted Nomura as saying.
“Already we are seeing signs of this. The Republicans have lost control of the House in the US midterms, and stock market weakness appears to have influenced President Trump’s trade policy to become more conciliatory,” Nomura said.
Other grey swan calls on the Nomura list include an Italian recovery, hyperinflation in the US and a comeback in the Chinese yuan.