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Don't Imagine 2016 Was An Outlier

16/12/2016 15:57

If anyone says they saw all that happened in 2016 coming they are lying. There's the wonderful stat that one of the big bookmakers released after Donald Trump's election victory which was had a punter put £5 on the outcomes of Leicester winning the premiership last year, Brexit and Trump they would have won £12,500,000. A tidy sum but way beyond the big win for the person who put £10 on Leicester at 5000-1 before the start of the 2015/16 soccer season. For anyone to have gone on to back Brexit and Trump at the bookies would have been a person with psychic powers beyond all comprehension. Given what's happened so far this year you could argue that 2016 is an outlier, but wait for next year, especially when you consider what's on the political agenda.

Despite all the uncertainty that has been dished out, financial markets have taken things in their stride. Especially in the US, few would have guessed that the Dow would be nudging 20,000 in the aftermath of a Trump victory. Investors that are long equities have generally had a good 2016 or in the worst case not necessarily suffered any great losses. Certainly, given the fallout from the Brexit vote when a number of people in the fund management space were nursing heavy losses on behalf of their clients, today many of their wounds have healed. However, whilst the equity bull market has continued, a few alarm bells are ringing in the bond market with the US's Federal Reserve looking to continue its tightening cycle and even the odd murmuring from the Bank of England that rates may have to go up in 2017 to address rising inflation. We have heard stories of the top of the bond market rally for years now, but a continuation of the sell off has the potential to impact equity markets in 2017 as any investor anxiety over debt is likely to filter through to other markets.

So onto next year. Politics will continue to play its part with the French and German elections being ones to watch. The growing electoral unrest is unlikely to have subsided by the time it comes to these elections. If 2016 has taught us anything it is to ignore voting polls and even though French Presidential favourite Francois Fillon is well ahead in the polls for next year's vote, France is the next key battleground for the protest vote and Le Pen is a clear threat. Of course we mustn't underestimate the triggering of Article 50 which itself carries many uncertainties as there is currently no clear path to Brexit. It will not come as any surprise to anyone that I voted to remain and happy to be called a Bremainer, but the reality is that what's done is done, so on this issue we need clarity and the sooner we get it the better, from both a business and investor perspective.

What does this mean for investors? It doesn't mean battening down the hatches, but I do think it means caution is required. There is no harm in being defensive and searching for some yield in the fixed income markets. For example, there look to be some good quality bonds on the London Stock Exchange's ORB market. Defensive equity stocks that are still generous with their dividends are also worth considering as they've been a little out of favour in 2016. For those who want to add some risk to their portfolios as well there are some exciting technology opportunities out there that should not be ignored, but often for these you have to look beyond UK listed companies.

Whatever 2017 throws at us, hopefully what we've learnt from 2016 will make us better prepared for the challenges and opportunities that lie ahead.


Disclaimer
This article does not contain and should not be construed as containing, investment advice or an investment recommendation or an offer of or solicitation for any transactions in financial instruments. Any opinions made may be personal to the author and may not reflect the opinions of my employer.

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