Global markets had a torrid start to 2016
Global markets had a torrid start to 2016 as they experienced the worst volatility in more than a decade.
January is normally an optimistic time for markets, as they begin the new year with vigour, but not this time around. The Dow Jones ended the month 6.60% down and the London FTSE 100 was 2.54% lower.
The worst was reserved for emerging markets, with the Shanghai Composite tanking 24% and the Hang Seng losing 10%.
Against this background the JSE all share did not do that badly. It was 3.06% lower in January, mainly due to continued weakness in resources stocks. Anglo American was 8.68% down and BHP Billiton lost 12.3%. Other blue chips were not spared either, with pharmaceutical group Aspen losing 13.08% and Old Mutual retreating 7.2%.
Markets were clearly spooked by the US Federal Reserve’s decision in December to raise interest rates for the first time in nearly a decade. Though Fed chair Janet Yellen emphasised that rate hikes would be gradual in 2016, markets doubted they would be able to continue on their growth path without the usual annual dosage of stimulus.
Yellen’s steps created the platform for a new risk-off era, benefiting primarily the US dollar.
To make matters worse, China’s growth path was clearly subsiding, but to what extent was unclear, causing huge uncertainty. Hiking rates in an environment of low growth usually ends in tears.
Global markets did recover somewhat towards the end of the month, but that could not be said for battered currencies in many emerging markets. The rand ended the month another 2.5% weaker against the dollar after having lost 30% in 2015. After weakening against the dollar in 2015, the euro firmed 0.18%. That was thanks to belated easing measures announced by the European Central Bank under its cautious president, Mario Draghi.
Lower oil prices were symbolic of falling global growth; Brent slid 4.8% in the month.
But savvy investors spotted a turnaround in the gold price, which firmed 5.5% in January on the expectation the Fed would find it difficult to hike further in 2016 as global economic growth was likely to remain weak.
Buying gold shares on the JSE in January was the wise thing to do as the gold index had already rocketed more than 70% by mid-February.