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2016 Review - A year to remember for investorsInto the unknown
The two defining events of 2016 – the UK’s vote to leave the EU and the election of Donald Trump as the next US president – may have been political, but the initial shocks of these earthquakes continue to reverberate across investors’ minds.
The long-term impact of both outcomes remains unclear, although investors can expect a little more clarity from January 20 when the new president is inaugurated. In the UK, prime minister Theresa May has suggested Article 50 will be triggered by March 2017.
At the start of 2016, investors’ biggest concern was the potential for a slump in China and the US, which sent stockmarkets into a frenzy in January.
Investors were also attempting to gauge the pace of rate rises in the US – not whether there would be any at all.
Richard Dunbar, senior investment strategist at Aberdeen Asset Management, recalls: “It is interesting that at the start of the year the two things that worried investors were a slowdown in China and a US recession. These were being talked about at that time and markets reacted accordingly. Those two huge concerns for markets have turned out to be ill-founded, at least in the short term.”
Protest votes
The outcome of the referendum on EU membership and Mr Trump’s victory on the back of a vicious campaign do have something else in common: both were considered a rejection of the so-called ‘establishment’ in developed countries, and appear to herald a new dawn for monetary and fiscal policy.
Stephanie Flanders, chief market strategist for the UK and Europe at JPMorgan Asset Management, says: “There has been much debate this year about the effectiveness of negative interest rate policies. But most would admit there is a limit on how low short-term policy rates can go.”
She adds: “This may hint at a new future for monetary policy, where central banks’ key role is not to push down the cost of borrowing as far as it can possibly go, but merely to hold long-term borrowing costs at low enough levels to make expansionary fiscal policy affordable.”
If 2016 is an indication of things to come, then investors should prepare for geopolitical events to increasingly affect their investment decisions. But volatility in markets should also present opportunities across asset classes and regions.
Ellie Duncan is deputy features editor at Investment Adviser
