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Re-cap: Six notable events from the first six months of the year

30 May 2016

As we approach the half-way point of 2016, we ask fund management groups for the six notable events from the first six months of the year

Rowing team

STOCK MARKET TUMBLES

The stock market had its shakiest start to a year ever, with global stocks tumbling into a bear market in January. M&G Fund Manager Steven Andrew says: “At the time there seemed to be plenty to worry about – a slowdown in China, the apparent risk of a US recession and even the health of the banks.” However, with these concerns “quickly fading in the rearview mirror” in mid-February, it underlines the importance of not confusing short-term, sentiment-driven volatility with genuine fundamental risk. “While the latter presents the possibility of permanently losing money, the former may offer compelling investment opportunities for those with the emotional fortitude to take them on,” Steven adds.

CHANGE IN SENTIMENT

The year started with the expectation that the oil price had further to fall, the Chinese economy was going to hard land and the US economy was heading for recession, but February saw a sudden change in sentiment. Richard Dunbar, an Investment Director at Aberdeen Asset Management, says: “Investors became more positive about many things that have been so fashionable to dislike of late, in particular emerging markets. No investor has a 100% track record switching in and out of asset classes when they peak and trough – a lesson, if any were needed, of the value of diversification.”

COMMODITIES RECOVER

After falling sharply in the first few weeks of 2016, under pressure from weakness in the oil price, commodity markets staged a recovery that has taken the Bloomberg Commodity Index up 8.8%*. Nicolas Robin, a Commodities Fund Manager at Columbia Threadneedle, says: “Precious metals have been the best performing commodities as macroeconomic concerns fuelled demand for safe heavens. In oil, the market found a bottom in the middle of the second quarter. While the market has been generally well supported in recent weeks, we expect a pullback to provide good entry points as physical markets continue their rebalancing into the second half of the year.”

NEGATIVE INTEREST RATES

The Bank of Japan surprised markets by adopting negative interest rates in January, while the European Central Bank went ‘all in’ with negative rates and lowered its key overnight deposit rate from -0.3% to -0.4% in March. Ned Naylor-Leyland, Manager of the Old Mutual Gold & Silver Fund, says: “As an investor in precious metals I’m firmly of the view that interference in the natural interest rate cycle has cemented today’s uncertain outlook over monetary policy. The use of negative interest rates in a renewed attempt to stimulate risk appetites has wide-reaching implications for all asset classes going forward.”

DOLLAR WEAKENS

After a multi-year rally the US dollar has weakened since the US Federal Reserve’s meeting in March. John Bilton, Head of Global Multi-Asset Strategy at J.P. Morgan Asset Management, says: “There is some scope for a little residual strength, but we see the dollar gradually starting to consolidate as the market prices in the Fed’s glacial path of hikes. If more stable and uniform global growth aids dollar consolidation, that would signal increased risk appetite and a better outlook for emerging markets. But if the dollar falters because of sputtering US growth, the outlook would darken for risk assets generally.”

GROWING FOCUS ON GREENER WORLD

The emissions crisis that started at Volkswagen late last year gathered pace with Mitsubishi admitting the falsification of fuel efficiency test data in April. “A number of other high profile carmakers have been implicated in emission-fixing activities,” says Nick Anderson, SRI Fund Manager at Henderson Global Investors. “Investors are beginning to question whether the crisis is the manifestation of the internal combustion engine facing obsolescence.” He believes the launch of Tesla’s Model 3 electric vehicle (EV) could herald the start of a huge shift. “Although EVs represent a tiny proportion of new car sales, once the tipping point is reached expect adoption to be rapid.”

* Data from 01.01.16 to 31.05.16