Andrew Roberts: Iran "the most important word in 2014"

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Iran has the power to move global growth up a gear next year, according to Andrew Roberts, co-head of European Economics, Rates and CEEMEA Research at RBS.

Andrew Roberts, Co-Head of European Economics, Rates & CEEMEA Research, RBS

The country’s tensions with the US have thawed since the election of President Hassan Rouhani in June and there have been clear signs of trading conditions easing.

This along with the US shale gas revolution and the widening gap between price benchmarks West Texas Intermediate and Brent Crude, means the oil industry is one to watch in 2014.

It is one of a number of views expressed in an outlook for 2014 published recently by Roberts and co-head Harvinder Sian.

Roberts says: “Iran is key – far and away the most important word of 2014. It can move global growth onto a higher footing.

"This not only means an increased supply of oil from one country but also raised stability in the world's biggest oil producing region."

“It has one of the biggest gas and oil reserves on the planet and the authorities there want the taps turned on. On top of that it is a demographic angel, with two-thirds of the population under 30 and a quarter aged 15 or younger.

“This not only means an increased supply of oil from one country but also raised stability in the world’s biggest oil producing region.”

He adds: “We are going to see increased energy production in 2014 and a cut in the price. Iran is just one part of this story. Saudi Arabian oil production running at all-time highs is another; United Arab Emirates production close to similar highs another; the US shale revolution yet another.”

Roberts says liquidity is the “number one global theme” from which everything else stems, including being long equities, long credit, and long peripheral European Monetary Union debt.

He says there are lots of reasons to be cheerful despite strong indications that the US will start tapering QE.

“Firstly, the People’s Bank of China is expanding its reserves again – by USD351 billion so far this year according to data up to September 2013,” he says. “This may indicate a more aggressive, near-term expansion.

“Secondly, the Bank of Japan is aggressively expanding too, with clear risks of more QE in 2014 as it attempts the second wave of yen weakening, which has always been coming in my view.

“And thirdly, the European Central Bank LTRO paybacks should slow because banks who want to pay back have done so and the cost of borrowing through the scheme has been cut by 25 basis points. We should not forget there is still the very high likelihood of increased ECB liquidity provision.”

Continuing his optimistic theme, Roberts says that, even though growth has been “a bit anaemic” in 2013, corporates will still squeeze out rising profits.

He says: “This is the flip side of weak wages, low inflation and weaker commodity prices.

Since I expect all these themes to continue, I expect corporates to continue to eke out gains. So investors should buy non commodity based risk assets and position themselves for steeper bond curves.”



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