By Alex Brandreth, Deputy Chief Investment Officer and Senior Fund Manager, Brown Shipley
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2016 has been a truly extraordinary year for financial markets, generating a succession of shocks which have reverberated across the world. Some of these events carry dire warnings for the future, most significantly the surprise decisions delivered in the UK referendum on EU membership and the US Presidential Election. Both events appear to reflect a rise in anti-establishment sentiment, a feeling which could gain further purchase in the run of important elections across the Eurozone next year.
EU referendum
In spite of dark forebodings about economic weakness in the event of a ‘no’ vote in the EU referendum, the UK economy has surprisingly felt little overall ill-effect so far – courtesy of sterling’s plunge on the foreign exchanges which has supported exporters. One shudders to think how the UK economy would have fared had sterling been a part of the euro.
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By GlobalDataFortunately, sterling’s weakness has been good news for UK investors looking at overseas assets and firms in the UK who derive their earnings abroad; the FTSE 100 is full of them which explains why the stock market has performed so strongly since June. Some market participants expected a ‘no’ vote to drive the market down to 5,000, yet the current level is closer to 7,000. The fall in sterling has also opened the door to UK assets being more sought after by overseas investors, something we continue to monitor for developments.
The Bank of England moved to support the UK economy in the summer by dropping interest rates to a new low of 0.25% and reinstating quantitative easing. Across the pond, the Fed’s plan to raise interest rates four times this year quickly went awry with worries about China again moving to the fore.
China
China, as it so happened, quietly slipped off the radar in Q2 and its overall stability this year has been impressive. It is on some measures the world’s largest economy, driving around one third of world economic growth.
US presidential election
The most recent major development in global politics, the election of Donald Trump as the next President of the United States, has also impacted markets significantly. Prior to the result investors were greeting the very thought of a Trump victory with fear, but we’ve actually seen stock markets and the dollar move from strength to strength in the weeks that have followed the vote. The news, however, hasn’t been as well received in global bond markets and yields have bounced significantly from their September lows.
Oil
At the beginning of the year the market was heavily oversold, so much so that it began to fuel fear in equity markets of sovereign wealth fund sales. It has taken nearly a year for major producers to finally reach a position to agree to cap supply, leading to the oil price reaching a high for the year as it comes to a close.
