After a volatile start to the year, what will be the dominant market-moving theme in 2014?

POLITICAL RISK

Local currencies will weaken and interest rates rise across emerging markets in response to the tapering of quantitative easing. And this financial instability will exacerbate the political risk trends that will continually move markets in 2014 – as we’ve seen in Venezuela and Ukraine. Commodities will face challenges from Libyan oil output and the prospect of the return of Iranian crude volumes. Japan’s tense relationship with China, meanwhile, and the unpredictability of North Korea’s leadership, may send shock waves through the region and beyond. Moreover, elections provide potentially game-changing moments in Brazil, India, South Africa and Turkey, and continue to be one of the most potent triggers for instability and violence in the emerging world, impacting investor sentiment. European electorates are likely to continue the trend of ousting incumbent administrations, and the potential for economic shocks, although not systemic collapse, remains. Dr Elizabeth Stephens is head of credit and political risk advisory at JLT.


MONETARY POLICY

We can always depend on central bank policy decisions to be globally market-moving events. This was proved most brutally when the Federal Reserve’s tapering prompted a sell-off in emerging markets at the start of the year. Similar reactions from investors will be a possibility throughout 2014 as long as central banks maintain their current uncoordinated approach. The reason behind the decoupling in central bank policies is that they are dealing with very different economic realities. I think we are going to see a lot more coordination (intended or by default) between the US and the UK – both face better growth prospects, stable inflation and falling unemployment. But the Eurozone, which faces the spectre of deflation, will likely be forced to keep rates lower for much longer, with negative interest rates not beyond the realm of possibility. Markets will be paying very close attention to what these masters of the universe will do next. Torben Kaaber is chief executive of Saxo Capital Markets.