Investment markets – Influences and influencers for 2016

As we emerge from the relative hibernation of the festive period, the world kicks back into gear and thoughts turn to the year ahead, with feelings of opportunity and trepidation finely balanced.

In the UK, we remain in an economic environment that is coughing and spluttering (like many of us) into a seventh year of a recovery that started in 2009, with probably more medicine to come before the patient is well again.

The low inflation, low interest rate and low growth environment is likely to continue in 2016, particularly with the Bank of England’s Monetary Policy Committee continuing to maintain an extremely cautious approach. This translates into a continuing expectation of low interest rates in 2016, which is bad news for savers seeking competitive interest rates, but better news for those who are looking to borrow, whether for business expansion or residential house purchase.

Britain’s continued membership of the EU, or ‘Brexit’ as it has been coined, will be in focus in 2016. The Government has promised a referendum and a vote may even come as early as the summer of 2016. Whether a hot summer with a feel-good Olympic factor will be a consideration as to when the vote takes place remains to be seen, however, the build up and lobbying that will come with it may have a knock-on effect for businesses considering capital projects or their UK head office locations.

Looking further afield, the two biggest economies in the world, the USA and China will no doubt have a great deal of influence in 2016. In the US, we are likely to see a great deal of two ‘leading ladies’ on our screens this year. Janet Yellen, the chair of the Federal Reserve has come more onto our screens as US interest rates were raised in December 2015, the first increase for nine years.

The increase of 0.25 per cent was at best underwhelming, but the trajectory of potential increases in the future are what most economists are studying with interest. Expect her to become a familiar face in 2016. The second leading lady is Hillary Clinton, the US Democrat who is tipped to be the most likely successor to Barack Obama in the US Presidential elections in November 2016. With wide support, if she were to be successful this is likely to be positive for markets.

China had a hard landing in 2015, which had a knock-on effect into falling commodity prices and equity markets. The lack of information and transparency creates problems relying on economic data and valuing companies, which leads to volatility. Also, around 80 per cent of Chinese stock-market investors are small retail investors, with short term speculation in mind, which increases volatility as we have seen in recent months.

With some key dates and events coming in 2016, the world will watch with interest the impact news flow and rhetoric will have on the markets and economic growth. The key influence remains ‘confidence’, which will shape the outlook as we move through the year. Regular investment reviews are paramount in today’s investment climate. We understand the importance that your portfolio is managed in a way that fits your lifestyle goals and attitude to risk. Are you aware of how your investment strategy is currently managed by your existing advisers?