Global markets face risks from inflation, China, elections, Middle East 

PHILLIP ISAKPA IN LONDON, UK

A raft of uncertainties ranging from a possible resurgence of inflation, outcomes of elections around the world, the crisis in the Middle East, and China’s growth, confront international investors around the world as they pose significant risks to stability and performance of global markets, say international investment experts predicting what await investors and fund managers looking at markets to invest in, this year.

A bleak outlook has been hanging over the world’s economy since 2022. There were strong expectations by a slew of analysts and forecasters that there would be a global recession last year which the world just managed to avoid. But ravaging inflation which began in 2022 settled on several economies leading central banks around the world to ignite their inflation combat gears that saw interest rates strongly mobilised to rescue what was seen as a precarious situation. 

Last year, a body of chief economists surveyed by the World Economic Forum (WEF) was certain that the global economy would be in recession. 

In a statement on January 17, 2023, the WEF stated: “A majority of the World Economic Forum’s Community of Chief Economists expect a global recession in 2023, see geopolitical tensions continuing to shape the global economy, and anticipate further monetary tightening in the United States and Europe,”

Specifically, nearly two-thirds of the chief economists believed the likelihood of the global recession happening in 2023, with 18 percent considering it extremely likely – more than twice as many as in the previous survey conducted in September 2022.

They were unanimous in strongly agreeing that the prospects for growth in 2023 were bleak, especially in Europe and the US. “All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91% expect weak or very weak growth in the US,” the WEF statement had maintained.

Predictions of a recession in 2024 have not been as forceful as those made for 2023 but geopolitical tensions, largely from the war between Russia and Ukraine, which will be two years old next month, remain with the tense situation in the Middle East involving Israel and Hamas in the Palestinian territory.

The Middle East crisis  is one of four risk elements that confronts global markets, said Nigel Green, an investment expert and fund manager whose deVere Group is regarded as one of the world’s largest independent financial advisory, asset management and fintech organisations.

But amid these risks and uncertainties also lie significant opportunities, said Green.

There are concerns over a possible escalation of the hostilities in the Middle East which global markets investors are now expected to factor in, especially with regards to the crude oil markets.

“One of the most pressing risks facing global markets is the potential escalation of the Middle East crisis. The October 7 attack by Hamas on Israel has heightened concerns about the possibility of the conflict spreading to involve other nations and groups in the region.

“Any escalation could disrupt global oil supplies, leading to increased market volatility. Investors are closely monitoring the situation, as heightened tensions may have profound implications for energy prices and overall market stability.

“Industries tied to energy, transportation, and commodities could experience significant fluctuations. Diversification and risk management strategies will be crucial for investors to navigate potential geopolitical shocks emanating from the Middle East,” Green said in his analysis of the geopolitical tension in the region.

Central banks from around the world, including the US Federal Reserves, the Bank of England, the European Central Bank, the Central Bank of Nigeria took a very hawkish position last year as inflation ravaged economies. Using the instrument of interest rates, central bankers embarked on stringent monetary policy tightening to curb the menace of inflation with successes recorded in a number of jurisdictions except Nigeria where several factors, including poor management of the economy, has seen inflation shoot to over 28 percent.

While there has been some calm in the inflation storm that got many economies worried from 2022 into parts of 2023, analysts are factoring in concern over any possible resurgence and Green says “the spectre of resurgent inflation remains a critical risk in 2024.” 

He said further: “Energy prices, a major driver of inflation, are known for their volatility, and any sudden surge could lead to an increase in the headline inflation rate. 

“Central banks, in response, may be compelled to raise interest rates to curb inflationary pressures, defying market expectations of rate cuts.

“For investors, a scenario of rising inflation and higher interest rates poses challenges, particularly in fixed-income investments and interest-sensitive sectors. 

“Corporate earnings could be impacted, and the heightened risk of recession may lead to a reassessment of investment portfolios. Investors must remain vigilant and adjust their strategies in response to changing inflation dynamics to preserve capital and optimise returns,” Green further explained.

Analysts are also factoring in key elections taking place in major jurisdictions globally with their potential impacts on the world’s financial markets. 

“2024 is marked by decisive elections in over 40 countries, representing more than 50% of the world’s GDP,” Green observed 

According to him, elections introduce an element of political uncertainty, and outcomes can shape economic policies, trade relations, and market sentiments, noting that key players, including the UK, the US, China, India, Taiwan, South Korea, Ireland, South Africa and others, are set to undergo electoral processes that could have far-reaching consequences for global markets.

“Investors are likely to face increased volatility in the lead-up to and aftermath of elections. Shifts in political landscapes typically result in policy changes that impact various sectors, prompting investors to reassess their portfolios,” Green said. 

Some uncertainties over China  and its economy have built up since last year especially in relation to what many analysts have termed ‘China’s growth crisis’.

Green said contrary to earlier forecasts, China’s post-COVID-19 reopening has not led to the anticipated growth in 2023. 

“The real estate crisis, representing a significant portion of China’s GDP, has been a key impediment to economic recovery,” he said, adding that with the entry into 2024, the prospect of China’s economic stagnation looms large, carrying implications for trade partners and global markets.

“Investors with exposure to China or industries heavily reliant on Chinese demand may face challenges if the economic downturn persists. Supply chain disruptions, reduced consumer spending, and market volatility could ensue, impacting the performance of multinational corporations,” Green warned. 

He surmised that investors, portfolio and fund managers needed to proactive under the cocktail of these risks, advising specifically that, “The interplay of geopolitical tensions, inflationary pressures, electoral outcomes, and China’s economic woes underscores the need for a proactive and diversified approach to investment management to protect and grow personal wealth.”

In Davos-Klosters, Switzerland, last year, the WEF sampling its community of chief economists found that expectations of a China growth were polarised, with respondents almost evenly split between those who expect weak or strong growth. 

They had projected that moves in late 2022 to unwind the country’s highly restrictive zero-COVID policy would deliver a boost to growth, but noted ahead that it remained to be seen how disruptive the policy shift would be, particularly in terms of its health impacts.