Global mar­kets had a tor­rid start to 2016

Financial Mail - Investors Monthly - - Contents - Maarten Mittner

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.

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