This time of the year, as investing firms make predictions about the next year, the lists all look remarkably the same. Thankfully, Deutsche Bank went against the grain and came up with a list of extreme possibilities for 2013.
There’s a lot riding on some of these investing predictions. No one wants to be remembered at the company that picked AMR as a hot stock for the year, only to watch it go bankrupt. The team at Deutsche Bank decided it wasn’t enough to agree with the consensus, thankfully, and thought outside the box to come up with the most interesting (if unlikely) list for 2013.
The reason Deutsche Bank created this list of big outlier events was because all of the other lists for 2013 are assuming markets will follow a normal course, which assumes extreme outcomes are rare. However, the 2008 financial crisis proved extremes can take place. All of the events on this list are based in very real possibilities, even if the outcomes have been take to extremes and may seem unlikely to occur.
Here are Deutsche Bank’s 13 extreme events for 2013.
The Federal Reserve buys stocks
It’s an unconventional monetary policy measure, but stronger equities could increase household wealth and boost investment. There are restrictions on what the Fed can buy, but it could invoke part of the Federal Reserve Act that “allows more extreme actions in ‘unusual and exigent circumstances,’” according to Deutsche Bank.
Greece discovers gas reserves worth more than the debt it owes
Several Mediterranean countries have already begun to use undersea natural resources, and Greece could get lucky. Potentially, the gas field south of Crete could be worth as much as $600 billion.
Sweden, Turkey and Brazil bring peace to the Middle East
These three countries have worked together in the past to resolve issues in Iran and in the Balkans. They’ve expressed interest in general about helping solve issues facing the international community.
The British government collapses
Some of the issues causing a possible split among the political parties are: energy policy, parliamentary boundary changes, House of Lords reform and economic policy.
Central banks worldwide adopt negative deposit rates
Denmark and Switzerland have already adopted negative deposit rates and Japan did it at the end of the ‘90s. Deutsche Bank says that the European Union and the U.S. could follow. As a result, major equity markets could be up in 2013.
North Korea opens up politically
There had been reports that Kim Jong-un had planned to push reforms in the country, similar to what China did in the ’70s and ’80s. Plus, Kim Jong-un is expected to meet the incoming Chinese president, Xi Jinping, who has close ties to North Korea.
Iran takes a softer approach to foreign policy
There is an Iranian presidential election scheduled for June, and some candidates are “viewed as more pragmatic on Iran's nuclear program generating the potential for a softer foreign policy following the election,” according to Deutsche Bank.
The correlation between stocks and currencies finally breaks down
Beginning in 2008 and lasting until the present time, there has been an unprecedented spike in the correlation between the G-10 currencies and equities. A breakdown in this correlation could “rekindle interest in FX as an asset class.”
The South China Sea geopolitical hotspot blows up
There are a number of issues that have led to heightened tensions in this area of fast-growing nations. Particularly an assertive China, an ocean of mineral reserves and disputed maritime boundaries have made for suspicion in the area. Plus, there have already been a series of naval skirmishes in 2012.
Europe gets solar power from the Sahara Desert
There’s a theory that a small area of the Sahara Desert could power all of Europe, and Desertec, set up in 2009, is looking to turn that into a reality.
Climate change hits financial markets
Droughts in the U.S., Russia and Brazil are forecasted to continue in 2013, which could affect global food prices and pressure central banks to tighten policy. Natural disasters (remember Superstorm Sandy?) could weigh on economic recoveries.
Emerging market bond bubble bursts
Investors have been building up their positions in emerging market’s local debt markets in record levels, but supply shocks could yield negative rates.
Malaysia’s 40-year-old government gets voted out of power
A change in the ruling party could impact economic policy and hitting government-linked companies and the equity market.