World mar­kets see off un­sta­ble 2016 in black

Fin­ish year in pos­i­tive ter­ri­tory de­spite shocks

Kuwait Times - - BUSINESS -

LON­DON:

Most world stocks mar­kets are set to fin­ish 2016 in pos­i­tive ter­ri­tory de­spite shock votes in Bri­tain and the United States, but 2017 is clouded by loom­ing Euro­pean elec­tions and Brexit. Lon­don’s FTSE 100 has gained almost 14 per­cent over the year, while Frank­furt’s DAX 30 added about 6.4 per­cent and the Paris CAC 40 won 4.1 per­cent. All three in­dices dipped Fri­day on the fi­nal trad­ing day of 2016, with Lon­don due to close at 1230 GMT.

This year wit­nessed a wave of anti­estab­lish­ment pop­ulism, which saw Bri­tain vote for its EU exit and the United States elect mav­er­ick bil­lion­aire busi­ness­man Don­ald Trump as pres­i­dent. Both un­ex­pected out­comes sparked a brief tum­ble on global eq­uity mar­kets­but many have since staged a stun­ning re­cov­ery to fin­ish 2016 in the black. Bri­tons voted on June 23 to exit the Euro­pean Union, spark­ing mar­kets chaos and send­ing the pound col­laps­ing against the euro and dol­lar.

FTSE sparkles

How­ever, Lon­don’s FTSE has since soared to end the year in record-break­ing form, as the Bri­tish econ­omy shrugged off the im­pact of im­pend­ing Brexit. Prime Min­is­ter Theresa May has vowed to trig­ger the two-year EU exit process by the end of next March. “Fears of an im­mi­nent UK re­ces­sion fol­low­ing Brexit proved wide of the mark thanks largely to the re­silience of con­sumer spend­ing,” NFS Macro an­a­lyst Nick Sta­menkovic told AFP. “In­deed, Brexit was viewed as a lo­cal rather than global is­sue, prompt­ing a sharp turn­around in the for­tunes of world stock mar­kets.”

Mar­kets also briefly tanked on Novem­ber 9 af­ter Repub­li­can Trump de­feated Demo­crat mar­ket favourite Hil­lary Clin­ton to cap­ture the White House. Yet Wall Street has since en­joyed a block­buster run with the Dow Jones In­dus­trial Av­er­age now on the cusp of 20,000 points. New York has been boosted by ex­pec­ta­tions that Trump­who will be in­au­gu­rated on Jan­uary 20 — will honor elec­tion pledges to ramp up in­fra­struc­ture spend­ing, cut taxes and boost busi­nesses.

“Ris­ing op­ti­mism over pos­si­ble tax re­forms, in­creased in­fra­struc­ture spend­ing and re­duced reg­u­la­tion have pro­vided a spur for Wall Street-but there is a risk of dis­ap­point­ment once Trump be­comes pres­i­dent in Jan­uary 2017,” cau­tioned Sta­menkovic. The ad­vent of Brexit and Trump has now thrown the spot­light onto up­com­ing Euro­pean elec­tions. The Nether­lands heads to the polls in March, fol­lowed by France in May, and Ger­many in the au­tumn.

Rise of pop­ulism

“Pop­ulism is the ris­ing mood of the mo­ment,” Lon­don Cap­i­tal Group an­a­lyst Ipek Ozkardeskaya told AFP. “Not only in the UK, but across Europe and the world. “Brexit will re­main on the head­lines in 2017, yet of course as the pic­ture will get clearer, in­vestors and mar­kets will find it eas­ier to take a di­rec­tion.” There are fears that the current wave of pop­ulism in Europe could pro­vide a boost to far-right leader Marine Le Pen in France.

“Change is afoot within pol­i­tics (with) vot­ers pre­pared to dare try some­thing dif­fer­ent, tired of the sta­tus quo,” noted Ac­cendo Mar­kets an­a­lyst Mike van Dulken. “Fears of the end of the world­from a Chi­nese hard land­ing, Brexit and Trump-have failed to ma­te­ri­al­ize.” Ger­man Chan­cel­lor An­gela Merkel is how­ever widely ex­pected to win polls set for Septem­ber.

“In 2017, the main fo­cus will be elec­tions in France and Ger­many,” added VTB Cap­i­tal an­a­lyst Neil MacK­in­non. “Vot­ers are likely to re­ject fur­ther fis­cal aus­ter­ity and push back against fur­ther su­per-state in­te­gra­tion,” he pre­dicted. He added that Europe’s eq­uity mar­kets were also lifted this year by the Euro­pean Cen­tral Bank. The ECB em­barked on an un­prece­dented stim­u­lus pro­gramme to drive up lend­ing and in­fla­tion in the euro area.

MacK­in­non also high­lighted the re­gion’s bank­ing problem af­ter the ECB called for Ital­ian lender Monte dei Paschi di Siena (BMPS) to re­ceive a bailout of 8.8 bil­lion eu­ros ($9.2 bil­lion). “The longer term chal­lenge of bank re­cap­i­tal­i­sa­tion and re­struc­tur­ing in the eu­ro­zone area per­sists,” he warned. In for­eign ex­change, many econ­o­mists pre­dict the euro could slump to par­ity against the dol­lar next year, aided by the Fed­eral Reserve’s hawk­ish stance on in­ter­est rates.

The Fed’s bullish out­look this month pushed the dol­lar to 10-month yen highs and sent it head­ing to­wards par­ity with the euro for the first time since 2002. In Asia yes­ter­day, Tokyo re­treated again but Hong Kong ral­lied as Asian mar­kets brought down the cur­tain on a volatile year. Ja­pan’s Nikkei rose 0.42 per­cent in 2016, mark­ing the fifth con­sec­u­tive an­nual in­crease. Shang­hai slumped more than 12 per­cent on the back of mas­sive cap­i­tal flight and a lan­guish­ing yuan cur­rency. — AFP

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