When oil prices were above $100/barrel (such as 2011 to early 2014) oil companies and their suppliers were the preferred leveraged equity trade
Similarly, EM currencies and high yield bonds were the preferred carry trades under zero interest rates policies (ZIRP) and quantitative easing (QE)
Oil prices have fallen by more than 40% during 2H 2014. This could have serious implications for vulnerable debt issuers with unsustainable debt levels
European corporate debt spreads have held up remarkably well during the sell-off in recent months – likely driven by expectations of monetary policy in the eurozone during Q1, 2015
9 out of 15 of the world’s largest debtors relative to GDP are located within the eurozone
The FOMC press release on 17 December included the word ‘patient’ – the first rate hike is therefore likely in April 2015
Financial markets already reflect the first rate hike – few bonds with maturities less than 3 years have value (with the exception of Chinese sovereign and quasi-sovereign debt)
China’s quest for reserve currency status in 2015 will attract considerable attention. Both equities and the CNY will continue to benefit from lower oil prices