Events that made waves in financial markets and global economy

Events that made waves in financial markets and global economy
With Opec producing more barrels of oil a day than the agreed level, prices have fallen by over 50 per cent in the past 18 months.
PHOTO: Reuters

1 Black gold loses its shine

Oil suffered one of its worst years in the past decade, as a combination of severe over-capacity and weak demand forced oil prices to their lowest levels since the financial crisis.

Brent crude fell to below US$35 last week, the weakest level in six years. Over the past 18 months alone, oil prices have fallen over 50 per cent.

The outlook remains murky for the commodity, also known as black gold, with Goldman Sachs predicting that it could hit US$20 a barrel. A big factor in the current weakness in oil prices has been the decision by the oil cartel, the Organisation of the Petroleum Exporting Countries (Opec), to continue pumping well above the usual consumption levels.

Goldman Sachs estimates that the 13 members are currently producing 32 million barrels per day, above the 30 million barrels a day level previously agreed by Opec.

The decision to produce more oil came as American producers could extract oil from shale reserves at about US$60 a barrel.

Hence, the current strategy used by Opec, engineered by Saudi Arabia, is aimed at keeping market share for Opec and forcing US producers out altogether.

Whether this level of low oil prices will remain will be a question answered possibly by next year, especially if demand from China picks up. This looks increasingly unlikely, however, with Chinese growth tipped to come in at 6 per cent next year, down from this year's projected 7 per cent rate.

For now though, consumers in Singapore are enjoying much lower pump prices and electricity costs.

Inflation across many oil importers are also down, with Singapore's own topline inflation hitting negative territory as a result of weak oil prices.

2 Blockbuster acquisitions

While public markets were in turmoil, private dealmakers were busy on the sidelines making some of the biggest mergers and acquisitions in corporate history.

According to market information services provider Dealogic, 2015 is set to be the biggest year for buyouts ever, with about 37,431 deals worth US$4.75 trillion (S$6.7 trillion) sewn up.

The biggest was pharma giant Pfizer's US$160 billion acquisition of Allergan. The deal was struck to help Pfizer cut its tax load through a process called "tax inversion" - getting its company reincorprated in a country with lower taxes.

Another gigantic deal was the US$130 billion all-stock merger between chemical giants DuPont and Dow Chemical. Dubbed "the deal of three centuries" by Wells Fargo analyst Frank Mitsch, the merger was one of several in a wave of consolidation across the industry precipitated by falling demand and weaker commodity prices.

Behind the deals, bankers profited immensely from the surge in mergers and acquisitions this year.

Goldman Sachs topped the league of extraordinary investment bankers, responsible for advising on more than US$1.7 trillion worth of deals. Morgan Stanley was a close second on US$1.49 trillion and JP Morgan third on US$1.48 trillion, according to Dealogic.

3 Connecting the trade dots

The global economy may be in a funk, with China looking fragile and Europe unable to get its act together, but the gloomy outlook has not stopped policymakers from concluding major trade pacts this year.

At the top of the list is the ambitious Trans-Pacific Partnership, a free trade deal inked in October after years of negotiations.

Led by the United States, the deal will link 12 countries across three continents in a pact that covers goods, services and investments.

The deal needs to be endorsed by the government of each participating country but analysts are already predicting positive impacts.

For one, the deal will change the rules of the game for trade and innovation, noted HSBC.

"Developing countries like Chile, Malaysia, Peru or Vietnam gain access to a large pool of innovation via open markets, promoting technology transfer. Developed countries like the US and Japan will be able to market each innovative product to more customers," it said.

Not to be outdone, China also made big moves on the trade front, pitching a new development bank to rival the International Monetary Fund and the Asian Development Bank. The Asian Infrastructure Investment Bank (AIIB) aims to invest in and facilitate infrastructure projects in this part of the world.

The US$100 billion (S$141 billion) AIIB has garnered the commitment of 57 countries as potential founding members, including Singapore, India, Britain, France, South Korea, Australia and Iran.

Nearer home, after a year of preparations, the ASEAN Economic Community will finally come into force at the turn of the year, heralding new opportunities for one of the world's fastest-growing regions.

4 Noble comes under attack

One of the year's biggest local corporate controversies was that swirling around commodity trader Noble, which saw its share price plummet after an anonymous research firm accused it of cooking its books.

What made it more astonishing was that the attack was similar to an incident in 2013 when short-seller Muddy Waters took on commodity firm Olam.

In February, Iceberg Research accused Noble of exploiting accounting loopholes. These accusations centred on Noble's asset and contract valuations, which Iceberg claimed Noble had manipulated to hide cash flow and debt problems.

Together with the global commodity woes, the Iceberg saga severely hit investor sentiment, sending Noble's shares down by as much as 70 per cent during the worst of the saga. In response, Noble put up a stout defence, accusing a disgruntled former employee of being behind Iceberg.

It also moved to make the company more transparent, changed its management team and sold some of its assets, including its base metal stockpiles, to reassure investors about its balance sheet.

Chief executive Yusuf Alireza has repeatedly stressed that Noble has more than enough liquidity to service short-term debt.

And it said it plans to raise at least US$500 million (S$705 million) through "asset disposals and/or other strategic/financial transactions currently under discussion".

With its stock trading at about 43 cents, down more than 60 per cent from its February peak, the company has a fight on its hands to regain the confidence of the market, even as its core business, commodities, continues to face stiff headwinds.

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