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The Case for Macro

Our Dynamic Allocation Strategies team explains why global macro investing offers many potential benefits when included in an investment portfolio. Read More (PDF)

Emerging Markets Outlook for 2017

The past 12 months have been fairly turbulent in emerging markets, but a number of factors support emerging market performance.  Read More (PDF)

2016: Boomerang in the Financial Markets

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Previously, I discussed how 2016 brought more than its fair share of big surprises with Brexit and Donald Trump's election, but in retrospect, it is clear that many of these surprises were years in the making. But politics were not the only surprises in 2016; the financial markets also brought some changes. Were they, too, years in the making?

When analyzing recent financial market performance, it is important to note the change from 2015 into 2016.

When analyzing recent financial market performance, it is important to note the change from 2015 into 2016. This change feels and looks like a significant upset: the first became last, and the last became first. Within equities, Brazil was the worst performer last year, down close to 42%; this year it is leading the pack on a global basis, up close to 65% (as of mid-December). Canada—a commodity-focused country, where metals and mining are important—was down 25% last year, and this year is up at almost the same level.

It is also important to note the change within 2016, from the first half into the second. Japan, which had a tough first half, is rallying aggressively at the moment. China, where there was weakness in the first half, is also coming back fairly strong in the second half.

We see a similar situation when we look at individual sectors: the top performers in 2015 are the bottom performers in 2016, and vice versa. Commodities-oriented shares (metals, mining, and oil) were negative, and came back substantially. Also similar to country performance, what worked in the first half of this year has suddenly stopped working. Telecommunications and utilities shares, which were up in the first half, are both down double digits in the second half on a global basis. Consumer staples are also performing poorly after a decent first half.

Could we have foreseen these scenarios? And can we predict anything from here? Fixed-income markets might provide an indication. After Brexit there was a natural move to risk-free assets. The move lower in yields did not last long, however, with the bond market selling off shortly after the summer. It now looks as if that was the low. Inflation has been around for some time.

We are exacerbating this move now with global political issues, and as we look more broadly, this inflation element is more pervasive than we previously thought and its impact on the markets is broader and deeper.