The large funds have finished determining the investment strategy for the first half of 2015 towards the middle of this month. We can more or less solve these strategies by looking at the global fund flows. Two main investment themes are forming currently. First, the euro will become the main carry trade currency debt instead of the dollar and the yen. The second and more comprehensive betting strategy is to bet on the global deflation. With this bet, the US long-term bond yields will remain low despite the Fed's inclination towards the monetary tightening. Emerging countries will still receive support more from the global deflation thesis than from cheap oil or ECB QE preparation.
Investors see that there's an excess capacity in the world; the global recovery is not strong enough to employ this idle capacity. The oil shock that erupted over this, will reduce the price pressure to a minimum level. Brent oil forecast made by Goldman Sachs for the end of 2015 for $ 50.5 / barrel, was revised for a temporary drop to $ 40 / barrel. In case that the very low cost based inflation remains permanent, by affecting the pricing behaviour, it can cause the individuals to predict low inflation in the long term. The inflation expectations which are calculated from the difference between the 5-year and 10-year and inflation-indexed Fixed-Income government securities in the USA dropped to 1.5%.
Even if the Fed raises the interest rate, the investors have started to bet on the fact that the interest rates of 10 and 30 years will remain low due to the declining inflation expectations. Moreover, the money printing type QE that the People's Bank of China, ECB and Bank of Japan have or are expected to perform are exciting the demand towards the US government bonds that provide relatively high yield and thus putting a downward pressure upon the returns. The size of US government securities creates a benchmark for the yields of the $ 100 trillion in the world bond markets, which means that all the interest rates are determined by adding a spread upon this yield.
According to Bloomberg, the yield on the US government securities will be 3.01% by the end of this year; but HSBC FIS research director Steven Major who has done the most accurate prediction in 2014, says "no; the yield first will drop to 1.5% and will close the year by only 2.5%."
The expectation that the global long-term interest rates will remain low favours mostly Turkey. The interest rates are also high in Russia and in Brazil, but the instability of the rouble in Russia and the low level of commodity prices in Brazil mean that these countries are currently not an attractive destination for the speculative capital.
