Let’s face it. 2016 was a topsy-turvy year, and to think that we have emerged from it relatively unscathed after what we had to contend with in the first two months of the year was no mean feat. The weakness witnessed in the first few months of the year had been unparalleled and many investors began to feel edgy and jittery on the prospects for the remainder of the year as the year had got off to
The weakness witnessed in the first few months of the year had been unparalleled and many investors began to feel edgy and jittery on the prospects for the remainder of the year as the year had got off to a horrendous start.
The European Central Bank turned from villain (in December 2015) to saviour (in March 2016) with a fresh wave of monetary accommodative stance providing support to what was a weak market. All asset classes rallied, from Investment Grade to High Yield, from Emerging Markets to a lesser extent European equities. And the run up to the Brexit showdown in June provided the ideal backdrop for a three-month-long rally.
The infamous Brexit referendum was met with great surprise, but also provided investors across the globe with an attractive opportunity to dip back into the markets, with a fresh wave of monies being pumped back into a flurry of asset classes, keeping global capital markets overall relatively supported over the summer months heading into the highly debated US presidential elections.
Economic data was mixed worldwide, with the US economy showing signs of robustness, China persistently marginal bouts of weakness and European data showing some glimmer of hope as the year progressed. Despite this, cash continued to be put to work cautiously and selectively and those asset classes which were perceived to be undervalued at the start of the year and post-Brexit correction continue to be the outliers.
Then the pinnacle of the year was the US presidential elections. Bond markets had already had their fair share of weakness in September/October upon increased speculation that the ECB could begin to trim the size of its monthly asset purchases, and a Trump victory sent sovereign yields even further upon expectations of higher inflationary data under a Trump presidency, both in the US and also having a possible impact on the remainder of the world.
Europe sovereign bonds and Emerging Market bonds were adversely impacted during the month of November in the wake of heightened inflation expectations and higher US interest rates respectively. This also brought about the notion that the 30-year bond rally could be potentially coming to an end, and it was more the abruptness of the moves in sovereign yields during Q4 of 2016 rather than the direction of the moves which resulted in additional moves.
And what can be said about the price of oil? The sharp decline in the price of oil towards the latter stages of 2015 and early days of 2016 was one of the key factors behind the lull performance and subdued sentiment, and the recovery in the price of oil from the $30/bbl to $50/bbl region was also key to global capital markets remaining supported. I am pretty sure that if the price of oil remained hovering around the $30/bbl level for the greater part of 2016, the performance figures below would be significantly worse off.
For illustrative purposes, I am hereby producing a number of performance figures of the key asset classes for our readers to get a glimpse of how markets performed throughout 2016.
Investment Grade Corporates (EUR): 4.8%
Investment Grade Corporates (USD): 5.9%
High Yield Corporates (EUR): 9.3%
High Yield Corporates (USD): 15%
European Sovereigns long-dated (EUR): 6.8%
Gold (USD): 8%
Oil (USD): 45%
DJ Eurostoxx 50 (EUR): 4.8%
S&P 500 (USD): 11.9%
FTSE 100 (GBP): 19.1%
*the above performances are stated in total returns where applicable
I would like to take the opportunity to wish our readers best wishes and a Happy New Year.
Disclaimer: This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt.The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.