Insightperspectives January 1, 2016 v3

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disadvantage of the corporate sector and the stock
market. In the short run, the biggest threat to a market
liberal European Union is which can no longer be
ruled out if Prime Minister calls a referendum in 2016 –
read The Telegraph article,
On the other hand, if Insightperspectives proves right
that the refugee crisis becomes a liability to growth
later in 2016, this may provide the president of the
European Central Bank with new arguments in favour
of expanding its ongoing money-printing program. The
latter and a deepening political mess in Europe should
create another downward leg in the euro.
China, however, has more room to ease monetary
policy, which is highly needed due not least to
weakness in the manufacturing sector, overcapacity
and high corporate and local government
indebtedness. This time, however, stimulus measures
may do little to help the rest of the world, at least in
the short run. This is the case as Beijing joins the global
currency war, although reluctantly.
In China, more monetary easing needs to be
accompanied by more yuan devaluation (read more
about this issue in the Insightview article,
. This will have serious
ramifications in the global financial market; and could
give rise to even more downward pressure on other
emerging market currencies and ultimately more
turmoil in the global stock market.
In Japan, policymakers have no ammunition left, having
printed money since early 2013. Indeed, Prime Minister
Abe fired a number of “arrows” that nearly all hit him in
the back. The coming quarters will therefore be crucial
for Japan. If Abenomics proves a success (the jury is still
out), the Bank of Japan is left empty-handed when it
comes to arguing for more monetary easing. Ironically,
this could turn good news into bad news, as the current
undervalued level of the yen is highly dependent on
more monetary easing. If the foreign exchange market
believes the Bank of Japan's ultra-loose monetary
policy is coming to an end (or money-printing is not
expanded), this could trigger yen appreciation, which
poses a significant risk to the stock market. This process
could be reinforced in an environment of global risk-off.
In 2016, emerging market economies will continue to
see increasing volatility, not least if Insightperspectives