What happened, Why & the Outlook for 2016
The start of share markets in 2015 replicated the start of 2014 with strong gains in the first quarter which drifted away through volatile movements over the remaining 8 months. Media focussed on a bad year for markets and investors but despite this returns in many diversified portfolios still managed to outperform cash and term deposits illustrating the benefits of long term investing and diversification.
Historically January tends to be a good month as we start a new year with investments, but 2016 has started differently with losses allegedly linked to the Chinese market and the incessant media commentary on China’s economic slowdown however the discipline of looking at economic fundamentals is the only long term way to invest with confidence and as at January 2016 the fundamentals are pretty good.
Although economic reports often focussed on the USA increasing rates and exiting the Quantitive Easing [QE] programme, the things that really changed 2015’s outlook turned out to be developments in the emerging markets, [notably OPEC and China] coupled with the fall in the price of oil which was a major shock to the global economy. This spearheaded the collapse of the Chinese equity market [from record highs] and then the depreciation of the Yuan provoked fears of spreading recession. These events introduced significant volatility.
Interestingly, the Australian economy actually had a better year than envisaged at the end of 2014. Business conditions improved, as did the labour market and arguably the change in Prime Minister helped improve the national mood. The expected depreciation of the A$ also contributed to stronger business conditions and noticeably helped international investments in portfolios. Nevertheless, the transition of growth outside and away from the resources sector remained slow and prospects of a budget surplus have been pushed out even further. From the perspective of overall wealth creation, the housing market performed very strongly in 2015, leading to the introduction of macro-prudential measures to cool speculative activity.
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