Season’s Greetings one and all. Like most years, 2016 has been another eventful year. From the concerning, with 30 million (plus) people in the United Kingdom voting in a referendum to leave the EU – a vote in which a whopping 52% people voting in favour of leaving EU ('Brexit') and only 48% people negating the exit strategy.
To the very concerning, with the surprise outcome in the US elections – the United States elected Donald Trump, a guy who can't even control his hair has been given control of the nuclear codes (can I say that, I just did) – where after a tight competition between the two most potential candidates, Hilary Clinton was Trumped, encouraging the Republicans to see a new dawn.
To the very very concerning and publicised issue, where a woman in the US got stuck up a tree while playing Pokémon Go! Okay… maybe not so concerning but it’s a sign of the times – it is very unpredictable what makes a news story today.
This year we said goodbye to David Bowie, Muhammad Ali, Harper Lee, Leonard Cohen, Prince and Fidel Castro Dean while, more upbeat, the Queen of the Commonwealth turned 90 - the world was invited to the party via social media!
Andy Murray won Wimbledon. We had the Rio de Janeiro Olympics where the problems were relatively benign. Olympic pool water turned green and the most harrowing tale -- four U.S. swimmers pulled from their taxi and robbed at gunpoint -- turned out to have been fabricated. And as for the Zika-virus paranoia, it was a non-event.
This year, 2016 did not bring any respite to strife-torn Syria. The country has been in the grip of a violent civil war since 2011 and the problems remain. There were also coordinated bombings in Brussels via two deadly explosions which left 32 people dead and more than 300 seriously injured. The continued territorial Disputes in South China Sea where in the month of July, the United Nations Convention on the Law of the Sea in Philippines v. China ruled against China's maritime claims - since it is not enforceable, China does not recognize the rulings of the tribunal. It continues…
There have been significant earthquakes in Ecuador (April) and Indonesia (December) and it is determined the US and China, together, are responsible for 40% of the world's carbon emissions. Surprise me!
2016 was perhaps remarkable for the things that many experts thought would happen but didn’t. China has not had a hard landing, Europe did not fall apart after the Brexit vote, the Olympics was not a complete failure, the South China Sea has not bubbled over into war, the Trump factor did not cause the US share market to crash and the Australian property market has not collapsed nor did the US raise rates at a unprecedented level. In fact, the global economy has continued (but at a subdued rate) of around 3% growth. While the macro environment turned out fine in the end, concerns early in the year based on all of the events above did constrain markets and at times created an interesting ride. Of course, those who foresaw a financial crisis in 2016 will now move their call into 2017.
Like last year, and the year before, significant events both here and abroad will continue to impact markets. Overall returns have been constrained to mid, single digit returns for most portfolios and we predict this to be the case for the next 12-24 months. There is no sign of the sort of excesses that drive recessions and deep drops in shares, there has been no major global bubble in real estate or business investment. The inflation rate remains low and global monetary conditions are relatively relaxed.
While the Federal Reserve is likely to raise interest rates throughout 2017 thus putting downward pressure on our dollar, this could easily be seen as a good thing. Our economy is likely to continue to rebalance away from mining even though this has slowed down based on last month figures. We do expect Australian shares to improve over 2016 as the resource sector profits surge following the rebound in bulk commodity prices, however still not at the 10-14% returns when compared to the previous years. Europe should do better in 2017 with emerging market underperforming if the US does continue to raise rates as expected. As the US raises rates (we estimate possibly three times during 2017 depending on the Trump factor), expect another bout of share market volatility similar to February 2016 and hence focusing on income assets as well as growth continues to be important part of portfolio construction.
The areas we are keeping an eye on are, the rapid rise in bond yields (most people who speak to us have known our concerns for over 12 months), China, and whether it will continue to avoid a hard landing. We will monitor how aggressively US may raise rates, the Brexit and the volatility created by anti-Euro populists as the Brexit unfolds. The rate our economy moves to non-mining sectors and the impact on US policy under President Trump will also be big factors.
It’s worth stating, that regardless of what’s happening here or abroad, we continue to closely monitor the markets, review potential risks, and consider potential changes to economic markets, growth industries and legislation to provide what is best for our clients. Where necessary, we will continue to recommend changes to both investments and strategies to maximise your situation.
It has been an eventful year for Active Financial Services, with our recent office move to Suite 1, 3 Barker Avenue, Como after 7 years in South Perth. We have also updated some of our software and other tools to continue to provide better and quality services to you. We appreciate everyone’s patience during these unavoidable disruptions and it will now be back to “business as usual” next year.
We hope you and your family have had a fantastic year and for those of you who are lucky enough to get a break, we hope you enjoy the time celebrating with loved ones.
From the team at Active Financial Services, please have a Merry Christmas and a safe New Year! We close our office on the 20th of December and re-open on the 9th of January. Please do not hesitate to email us should there be an urgent matter during this time.