Everyone is wondering whether the financial storms will ever pass, so that we can settle down and start the rebuilding process.

Present conditions are reminiscent of the predicament in which Job of Bible fame found himself, when God allowed the devil to test Job.

The parallel is that the financial sector over the past couple years has suffered a devastation second only to Job’s experience. China’s economy has been slowing; Brazil experienced something akin to a financial tsunami; European banks’ profitability is under pressure (due in part to very low and in some regions negative interest rates); and the USA is still trying to recover from the events of the 2008 subprime era, even nearly a decade later.

One manifestation of the global challenges is shown in the collapse in oil prices. At a time when the world economy should be booming, having put so many measures in place to emerge from an earlier recession in the first part of the 21st century, the combination of low oil prices and tepid growth have served to strangle the global economy to a little above its last breath.

A lot is now dependent on which way the “black gold” — as it used to be called — flows; and it is believed by some that more robust global growth will manifest itself in sustained positive change in the price of oil.

The persistent decline in the price of oil over the last few years have weighed heavily on the viability/growth of corporations, banks and governments, and it is generally believed that only a significant increase in price can pull entities with large exposures to oil back from the brink of total disaster.

But there is a low likelihood of a price increase without the corresponding decrease in the supply of oil unless demand increases exponentially. And herein lies the problem, as the oil-producing countries are reluctant to bring down the supply of oil.

At the end of December last year, the US Federal Reserve Bank (FED) decided to raise its benchmark interest rate from 0.25 per cent to 0.50 per cent as economic growth, though moderate, seemed to have stabilised and as the labour market approached full employment which is expected to eventually cause inflation to rise to the Fed’s inflation target.

However, given the high level of volatility seen in asset prices (including oil) so far this year, some analysts suggest that the Fed may not be able to proceed with its intention of gradually increasing rates this year and may even be forced to cut rates. In addition, the continuing geopolitical tensions between the Gulf countries and Iran continue to drive the price of oil further south.

The IMF in an updated outlook in mid-January 2016 had forecast that the Eurozone economies would post average growth of 1.7 per cent in both 2016 and 2017 — a forecast which was an increase from 0.9 per cent in 2014 and 1.5 per cent in 2015.

At the same time, the IMF further forecast that stronger private consumption in the Euro area would be supported by lower oil prices.

Whether this materialises will only become apparent over time, but what is more apparent is that the low oil prices have had a weakening effect on inflation in a number of the Euro-area economies, and this has the potential of putting pressure on the ECB to review its stimulus programme.

Three key nations: Spain, France and Germany, have all seen reductions in their inflation rates, and it is feared that the situation could extend to all 19 nations of the Euro area, thereby plunging the nation into stagnation — and the ‘stronger private consumption’ which was forecast by the IMF could be in jeopardy.

Despite all the weakening inflation numbers in Europe, there is one small glimmer … the stimulus by the ECB could be good for bond investors. A stimulus programme will engender confidence in the bond market and thereby create a demand for securities. When this happens prices tend to rise, so that people holding these securities will see some capital appreciation in their portfolios.

What, then, would the smart investor be expected to do with the above information? If it is true, a smart investor would position himself in European bonds which have potential for price appreciation. It must be remembered though that such bonds should have good fundamentals. Up to recently, bonds, generally, have been taking a beating on the global market, and many investors have been cautious in investing in these securities.

This was the prudent thing to do over the past few months, but now the winds of change are blowing in the direction of bonds.

It is time to take advantage of the coming opportunities.

Pamela Lewis is vice-president, Investments and Client Services at Sterling Asset Management Ltd. Sterling provides financial and advisory services to the corporate, individual and institutional investor. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: info@ sterlingasset.net.jm or visit our website at www.sterling.com.jm.