Doomsday Predictions For 2015

It’s only one more day to a new year. What does 2015 hold for investors? I don’t have any working crystal ball that lets me see what the future holds. But, that doesn’t mean I can’t conduct any thought experiments to see what could go wrong or what could turn out very well in the upcoming year.

I’ve come up with two scenarios, one for a doomsday-like 2015, and one for a really prosperous 2015. You can check out the prosperous scenario here. But for now, it’s all doom and gloom.

Year 2015

The year starts with the end of the commodity boom. After the oil price slump which took place near the end of 2014, all other commodities follow suit with sharp price declines of their own. Companies such as Noble Group Limited (SGX: N21) and Olam International Ltd (SGX: O32) see the value of their inventories fall sharply as a result, adding financial stress to their operations. Over-leveraged commodity-based companies from all over the world also begin to fall into financial difficulties.

It’s not just companies which will feel the pain. The large-scale commodity price declines will also lead to countries which are highly dependent on the commodities trade to fall into recession. Australia, China, Indonesia and Russia might be one of the first few to feel the effects.

As the recession plods along, the spending power of the consumer slows down significantly. The slowdown spills over to the property sector, causing property prices all over the region to fall. Property developers such as CapitaLand Limited (SGX: C31) and Yanlord Land Group Limited (SGX: Z25) see their unsold inventory increase rapidly.

Many over-stretched property developers and property buyers face financial difficulties at best – or bankruptcy at worse – as they are unable to keep up with the interest on their borrowings. This leads to the non-performing loans of the major banks to spiral out of proportion.

All of a sudden, banks such as DBS Group Holdings Ltd (SGX: D05) and United Overseas Bank Ltd (SGX: U11) become the largest property owners in the region as they repossess many properties. But, the banks too are unable to dispose of their real estate fast enough. This leads to a liquidity crisis and eventual panic across the financial sector. Depositors, fearing for their cash, start withdrawing their money from the banks and a run on the banks become unavoidable.

Governments around the world struggle to hold their respective economies together and come up with huge stimulus packages in a bid to prevent the global economy from collapsing.

Foolish Summary

Although this is only a thought experiment, it highlights some of the “black-swan” events that may sink our economy. In these darkest of times, who would be less impacted? Mostly retail companies which focus on consumer staples, such as the supermarket retailers Sheng Siong Group Ltd (SGX: OV8) and Dairy Farm International Holdings Ltd (SGX: D01) – but that’s also provided that these firms would have a strong enough balance sheet to withstand the downturn.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies mentioned above