Source: Peter Miller BA, Dip Fin Plan, AFA Investment Adviser
Select Insurance & Investments Limited
As 2016 draws to a close we reflect on some of the more significant events and their economic impact – or non-impact! Economically and politically it’s been a remarkable year.
United States of America
The year started with pessimists forecasting recession and the New York stock exchanges delivered the year’s worst performance in February. Please refer below to the MarketWatch Standard & Poors 500 chart (SPX) year to date.
MACD: Moving average convergence divergence is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals. - Investopedia
US Stocks recovered strongly March to July in spite of a short sharp dip after the 23rd June Brexit referendum in Britain. Then there were a few wobbles leading up to the US election in November as a Clinton leaning media broadcast anti Trump fears. Events proved them wrong on the vote and so far on the market reaction to a Donald Trump presidency.
US unemployment fell from 10% in October 2009 to 4.9% in June 2016 according to the US Bureau of Labor Statistics and remains at around 5%. By comparison, the New Zealand unemployment rate was 5.7% for the first three months of 2016.
Performance of the New Zealand stock market (please refer to the NZX 50 chart below) largely followed a similar pattern to the S&P 500 until it attained an all-time high in September 2016, then eased back.
The 14th November earthquake and the surprise resignation of Prime Minister John Key on 5th December 2016 inject extra elements of uncertainty into election year 2017. This chart illustrates the strong returns the NZ share market has delivered over the last two years.
The Australian All Ordinaries Index started the year at 5,322 on 4th January, peaked at 5,670 on 1st August (well short of 6,779 recorded on 3rd October 2007) and on 6th December 2016 was back to 5,502 showing a gain year to date. As at October 2016 Australian unemployment rates ranged from 4.9% in New South Wales to 6.4% in South Australia and 6.7% in Tasmania. Australian banks have just told borrowers to expect a rate hike of up to 0.65% (Commonwealth Bank) just in time for Christmas, blaming it on the “Trump effect”.
Mid-eastern refugee immigration and the post Brexit resignation of former Prime Minister David Cameron complicated an already slow European economic recovery. The 4th December Italian “no vote” on constitutional change resulted in the resignation of Prime Minister Matteo Renzi sparked concerns for Italian bank shares and fuelled further gains for US banks. With polls showing the majority of Italians in favour of leaving the European Union (EU) some commentators anticipate an Italian Brexit like referendum in 2017. Meanwhile French President François Hollande announced he is not seeking a second term because he can’t win.
The World Banks October 2016 Asia-Pacific economic update summarised its key findings as follows:
Growth in developing East Asia and Pacific is expected to remain resilient over the next three years,
China is expected to continue its gradual transition to slower, but more sustainable, growth, from 6.7 percent this year to 6.5 percent in 2017 and 6.3 percent in 2018.
In the rest of developing East Asia, growth is projected to remain stable at 4.8 percent this year, and rise to 5 percent in 2017 and 5.1 percent in 2018.
Overall, developing East Asia is expected to grow at 5.8 percent in 2016 and 5.7 percent in 2017-2018.
These very brief reflections on 2016 lend some support to expectations of a positive investment environment in 2017, principally in USA and much of Asia and perhaps Australia, with ongoing positive but possibly more subdued outcomes in New Zealand than we have enjoyed in 2016.
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