2016 Markets in Review and Looking Forward

2016 Markets in Review and Looking Forward

We’re already well into the new year and now is an ideal time to look back over the investment year that was 2016 and see what we can learn when we look forward to 2017.

One thing is certain, 2016 turned out to be the year of the underdog. On the sporting field the rank outsiders became champions whether it was the Sharks, the Western Bulldogs, Leicester City and the Cubs. In the global political arena Brexit and Trump also unexpectedly came out as winners.

So it’s hardly surprising that when we look at the market, 2016 was a year of watching for the unexpected. Volatility was high and over the year market confidence was regularly battered.  The main focus for investors being the US Federal Reserve’s plans to lift interest rates, when and by how much was the name of the game.

Looking firstly close to home in the Australian market experienced an initial market dive but for those investors that held on, the return for the year was quite good. As shown in the graph of the ASX All Ords from Yahoo below, the year ended well and the index gained a reasonable 7.5%. Adding an average dividend of 4% to this return, a diversified holding of Australian shares provided a double-digit return, about 11.5%.

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Global equity markets had a similar jagged rise over the year, with the unexpected Brexit and Trump outcomes initially producing a market drop shortly followed by a sustained rise. The experts that predicted that a Trump victory would produce a flight to gold and a market collapse found themselves on the wrong side of equation with gold prices falling and a strong equity market rally that has so far been sustained into the New Year!

The Australian residential property market in capital cities continued to defy gravity on the back of exceptionally low interest rates. It was great news for investors and continual bad news for first home buyers trying to enter the market.

The listed property market had a particularly strong year with returns in the high teens both locally and overseas.

Bonds and fixed interest provided relatively flat returns but the concerns of capital losses from rising rates did not materialise and the returns from funds were better than those available from term deposits.

Some key investment lessons from 2016 that I expect to carry over into 2017 are:

  • Ignore the so-called experts, they get paid per-view, not on results;
  • Be cautious of chasing assets that have already risen strongly in price, returns tend to even out over the longer term and asset price bubbles definitely do exist;
  • Volatility is a new normal with markets now supporting the ability for investors to move large capital amounts able to rapidly flow into and out of markets, ignoring volatility and potentially taking opportunities to buy a contrarian position; and
  • Maintain a diversified portfolio to smooth out the fluctuations in markets and single assets. In short, don’t “put all of your eggs in one basket” because the sure-thing may not carry the day.

 

I am certainly looking forward to seeing what opportunities 2017 offers – happy investing!

This information, and any advice provided is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it.
Sacha Loutkovsky
sacha.l@orionfg.com.au
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