Analysis: Safe haven assets could come into play this year

Russian banks' loan quality has been deteriorating as an economic slowdown makes it harder for borrowers to meet their loan repayments. Above, VTB Bank in central Moscow. Sergei Karpukhin / Reuters

It is only February and 2015 is already a year to remember. It is clear that we will have 10 interesting months ahead.

As we ended 2014, we warned about the global slowdown and that some central banks will intervene and break their promises. The majority expected that the role of the central banks this year would be to announce new rate hike cycles. However, the year has not started as expected.

Growth, inflation, unemployment rates, spending and many other economic activity indicators were expected to improve by the end of last year. Many even thought that the global economy would start to expand this year, but this has not happened.

What we have seen in the first months of this year reminds me of the global financial crisis back in 2008. Central banks suddenly retreated and broke their promises to the world.

From the start of the year we have seen 17 aggressive interventions by central banks around the world, cutting rates, deposit rates or adding more cheap money.

All central banks act individually, and this created a tsunami in the markets. In the crisis of 2008 the opposite happened, with the central banks coordinating their interventions. In the last few weeks we have seen that these banks are now totally disconnected. Economic recovery is not even close. Any upturns we have seen now appear to just be as a result of printing “cheap” money. The start of the issues came when we were all busy with Ukraine and Russia, and crude oil crashed by more than 60 per cent.

Inflation, growth and general economic activity also stalled, and everyone then started to realise that the global economy was slowing down. This led to the aggressive interventions that we are seeing now. The question is, is it over? Or is it just the beginning?

If we look back at the central banks’ actions, we can see that whenever they halt their cheap money polices, economies slide back. In other words, when the music stops, everyone stops dancing. This is because the global economy was “unhealthy”; it was not a structural recovery.

Global debt is rising again and is at another record high. Bubbles are also appearing everywhere because of these easing policies.

Another question we have is over how long the central banks can keep expanding their balance sheets. They are already about to explode. What are they going to do with all of these assets that they are holding? Who will buy them if they decide to sell? No one can answer these questions; only time will tell.

We are not learning from our mistakes. If global debt keeps expanding the way it is right now, another crisis could be ahead.

However, with such events and interventions, volatility will always create opportunities, but it seems to me that safe haven assets will come into play sometime this year as central banks face up to the continuous deflationary fears.

Nour Eldeen Al Hammoury is the chief market strategist at ADS Securities.

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