Herewith my letter. There is much more I could have added but letters have to be brief. Of the UK bank lending to business, over 80% is for construction with over 80% of that construction being in London and over [...]
Floods, Brexit and Migration with Weak Economic Growth and Tumbling Markets Makes 2016 A Tough Year Already.
There may have been a brief stock market rally late in 2015 and any expressed wishes for its continuance have been dashed as 2016 so far has been a tough one for many people and not just investors. Here in the UK floods have battered the country especially in Yorkshire, Cumbria and Scotland.
Global stock markets continued to tumble in early 2016 due to a raft of factors from China’s currency devaluations to its stock market collapsing, and the US Federal Reserve raising rates in December 2015 combined with poor US corporate earnings since. Also further oil prices weakness has affected Sovereign Wealth Funds, such as the Saudis, forcing selling of holdings to raise cash to sustain public spending.
The FT’s John Authers makes further comment on why and who are to blame for the troubled start to the year – please see the link below.
From the April 2015 market highs and during the summer before the Autumnal volatility there was the opportunity to trim or sell holdings if economic growth and political upheaval truly concerned investors. Notably, timing markets or fear of missing out on the good days often makes investors hold back from fully exiting and only with hindsight does anyone ever know what’s best anyway.
However taking profits is a reliable and a slightly easier exercise for long term investors. So hopefully enough cash was taken in to reserves in 2015 at market highs to provide cash buffers and allow for re-investment opportunities.
Is it worth looking for bargains now in 2016?
Intuitively it’s a personal issue with each investor’s own appetite and preferences determining investment decisions when market conditions are volatile and unpredictable. Large market gyrations can foil the most skilled short or multi-strategy traders.
Accepting the already mentioned abundance of unfavourable global political problems such as Middle East wars with its accompanying European immigration issues will persist for an unpredictable period long term investors, pension or life insurance funds and the long only private investor of course, will need to weather the volatility and maintain market positions as they need to produce their required returns somehow.
Historically, heavy market falls are reciprocated by large market bounces and as long as the global economy isn’t headed in to another disaster they should materialise. Although there’s been pessimistic chatter about another financial crisis with banks (mainly European and Chinese focussed), or China having hard landing (again) or the US economy slowing down again as it’s been one of the main global economic bright spots of recent years.
However, I maintain with 7 billion people worldwide driving demand some positives eventually do happen making long positions worth maintaining and adding to if you get your stock picking right and have maintained some cash reserves too.
Market commentators on Bloomberg TV in late February talk about a stall in the market with low oil prices being a positive for US consumers but a hindrance for global stocks as petro-economies need to raise cash. The mid February rally was companies performing buy backs of high quality stocks.
It’s a stock pickers chance to outperform if the right stocks are picked – good luck with that for 2016.
As for Brexit – the referendum to stay in or leave the EU is to be held on the 23rd June 2016. The potential outcome will affect all manner of issues and confidence in the UK government and economy until concluded. So the quicker it’s over the better as volatility will continue until such a time. My prediction: 57% stay again 43% leave.
References and Further reading
Financial Times, (2016), “Many suspects behind murderous markets by John Authers, The Financial Times Ltd, London, UK.” Website accessed: 24th February 2016: