Now that the dust has settled on 2016, it is worth taking a moment to review how the financial markets performed over the year.
Amidst the uncertainty of Brexit and the US election, some investors were alarmed by the news headlines and fluctuations in the market. The reality is that, over the course of 2016 there was a general upwards trend across all major markets with the FTSE 100 closing at a (then) record high.
The FTSE gained 17.22% in 2016 with a maximum gain of 29%, fuelled by a mass sell-off in February from fearful investors and a move from major trading houses to ‘bank’ profits. The unexpected Brexit vote (as far as the polls were concerned) drove markets up 16.37% from June to December. The US election provided less of a stimulus with modest gains of 3.34%.
The S&P 500 followed a similar trend with calendar-year gains of 11.24% and a maximum gain of 24.20%. The UK’s decision to leave the European Union pushed US markets up by 9.89%, although Donald Trump’s remarkable victory in the ‘Race for the White House’ returned only 3.49%.
The DAX gained 11.65% during 2016 with more significant gains of 20.13% following Brexit. A maximum gain of 31.17% demonstrated strong returns in Europe; but uncertainty remains rife with elections due in France, Holland, Italy and Germany as the life of the single currency hangs in the balance. European banks are now valued less than one year ago, despite the share price movement.
Fortunes in the Far East followed a different path, with the Nikkei 225 and Hang Seng up less than 4% over the year. Maximum gains exceeded 30% as both markets bounced back considerably from the sell-off in February. Interestingly, the Nikkei achieved gains of nearly 28% following Brexit as fears over the UK’s exit from the EU began to settle and we saw an (unusually) high correlation between the Japanese Yen and US Dollar.
Without doubt, Brexit has had a negative impact on the value of the British pound; although, this does bring benefits for firms exporting to the EU and the UK tourist market.
Over the course of 2016, the pound fell 16.62% against the US dollar; and as much as 15.59% following Brexit. Similarly, we saw the pound weaken against the euro, losing 14.38% over the year.
The price of gold ($ / Troy Oz) increased modestly over the year by 7.11%. However, the price took an interesting turn after Brexit – alongside the US Federal Reserve showing caution on raising interest rates – falling 12.91% to year-end; despite investors increasing their exposure to the precious metal which pushed the price to its highest on 6th July. The consensus from the experts however, is we are yet to see the market turbulence that is widely expected and a true ‘flight to safety’ has been delayed whilst equity markets remain buoyant.
UK house prices continued to rise, with data from the Land Registry showing an increase in the average value of £11,217 from January to October as the chronic imbalance between demand and supply played a big part in driving up prices. However, slower economic growth, pressure on employment and a squeeze on spending, are expected to reduce housing demand during 2017. That said, house prices should be supported by a shortage of property for sale, low levels of housebuilding and low interest rates, meaning there has never been a better time to borrow.
With the benefit of hindsight, we still stand by the view we gave in June – namely ‘don’t panic’. Remember that, irrespective of volatility, you only ever lose or make money when investments are sold.
All percentages quoted are based on market close prices, not intra-day highs or lows.