Market Reports

Market Summary | December 2016

15th January 2017

The Author: David Cooper

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Financial strategist, investment adviser and Sales Director for United Advisers

There’s been nothing usual or predictable about 2016 and the end of the year was no different.

Traditionally a quiet month for markets, this wasn’t the case for December 2016, with the FTSE 100 Index finishing at an all-time high.

Two events dominated the headlines in US markets:

  • Trump and his first 100 days in office
  • The Federal Reserve 0.25% interest rate hike.

The dollar, following an initial dip at the Trump presidency announcement, is now at its strongest levels since 2003. This has not helped the performance of the euro which remains at one of its lowest rates. But all is not lost for the Euro; the long anticipated Brexit strategy announcement from Theresa May on Tuesday may finally start to reverse the euro’s fortunes.

Market performance december 2016

Source: Bloomberg

A rise in US equities followed Donald Trump’s election win in November, fueled by optimism about tax-cut and infrastructure spend policies. This “Trump Bump” transformed into a “Santa Claus” rally into the year-end.

Some intelligent appointments to senior positions in the Trump administration continued to reassure Equity markets, but it remains to be seen if this positive performance can continue into 2017. Trump has already angered the Chinese by accepting a controversial phone call from the president of Taiwan.

Europe held a few positive surprises in December. Italian markets, having anticipated Renzi’s resignation, were rewarded with top market performance. Austria saw a move against the populist voting trend with Alexander van der Bellen, a Green candidate, winning the presidential election.

Also In December the European Central Bank (ECB) surprised the markets, keeping rates unchanged, but announced a change to the Quantitative Easing (QE) programme. The ECB will extend bond purchases through to the end of 2017, but at a lower rate of €60bn per month, effectively preparing investors for a gradual decrease in QE but over a much longer period.

In the UK, Brexit remained the dominant topic with the Oxford Dictionary including the term. Theresa May will reveal the Brexit strategy this Tuesday and many are predicting a ‘grey’ strategy. This will take the middle ground between the original ‘hard’ and ‘soft’ proposals. Presently, however, the only certainty is uncertainty.

At the end of the year, equities were the winners, helped by poor pound versus dollar performance, combined with oil price rises. The FTSE 100 went above 7000 and finished at an all-time high at year-end.

In Japan, the November equity rally continued through December into year-end. The depreciating Yen pushed up equities in Japan’s major exporters, and because they dominate the stock index, the Nikkei 225 reached its highest level since 2015.

Outside the currency impact, Japanese economic data seems to be improving. As export volumes rebounded, Industrial output rose to the highest level in over five months, indicating potential economic expansion in Q4 data; the yen depreciation should further boost export gains. Japanese Government Bond yields remained stable, despite movement in global bond yields.

Market Performance December 2016 Japan

In China, 2016 saw the gradual devaluation of the Yuan, and in December, it reached it’s the lowest level against the dollar since 2008.

In December, the Chinese government introduced further legislation to prevent capital leaving the country to try and quell the reduction in outflows. The measures included a crackdown on cash withdrawals from ATMs in casino heavy Macau and overseas property purchases.

The Chinese stock market had a tough time in December. The Shanghai and Shenzhen 300 Index were down 6.4% for the month. Markets will continue to follow the Chinese growth story, but currency control and capital outflows will be a major theme in 2017.

Elsewhere, in Emerging Markets, the OPEC proposed production cut dominated headlines. OPEC members agreed the historic production cut at the end of November, but there was no guarantee some of the larger non-OPEC members, such as Russia, would not increase production.

One of the best stock market performers in 2016 as a whole, was Pakistan. The Karachi Stock Exchange 100 Index has been on a massive rally. It was up 46% in 2016 and up over 300% in the last five years, finishing 2016 at all-time high.

Part of the increase results from the inclusion of Pakistan in the MSCI Emerging Markets Index in 2017. The strong 2016 performance, plus other key indicators, makes Pakistan a market to watch in 2017.

To read more about the markets included in our Market Summary, please download the Full Market Review | December 2016.pdf (236 downloads) .

Purple Strategic Partner profiles UAG

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