[Estimated time to read: 5 minutes]
2015 was a year peppered with extremes, but perhaps not defined by them. We saw highs and lows but, overall, markets have not greatly moved forward or backwards this year.
It may be hard to recall now, but 2015 began with a surge of optimism which saw both the FTSE 100 and S&P 500 reach multi-year highs in February – the FTSE 100 hit an all-time high on 24th February at 6,949.63.
Sadly this optimism was relatively short lived… But, as every savvy international investor knows, stock markets only tell part of the story.
The ineluctable modality of the Swiss franc
Switzerland, the country of cheese, clocks, banking and a seemingly stable currency, delivered one of the year’s first shocks when the Swiss National Bank (SNB) took the controversial decision to abandon the franc’s exchange rate peg with the euro – therefore allowing the franc’s value to shoot up and causing grief for thousands of investors.
The franc had been pegged to the euro since 2011, when the European financial system was in turmoil, and had remained so ever since. As a very economically stable country, the currency is favoured by investors and banks alike as a “safe haven” asset and so is owned the world over.
There were many reasons for the SNB’s decision and many who complained afterwards about it being taken (not least the country’s exporters for whom business suffered as the value of the franc crept back up), but it needed to happen, in part, because of what was on the horizon…
Quantitative easing isn’t over…
Arguably coming a little late to the party, European Central Bank chief Mario Draghi announced on 9th March that the ECB would be beginning its own round of Quantitative Easing – buying billons of euros worth of public sector debt each month until at least September 2016.
The move was welcomed by stock markets across Europe and globally. Perhaps the troubles which had plagued Europe – particularly Southern Europe – were finally coming to an end?
The mood remains relatively upbeat – despite continued economic turmoil in Greece and question marks being raised again over the viability of other southern European countries’ economies, such as Portugal, Italy and Spain.
A modern Athenian tragedy
On 1st July, Greece took the unenviable title of becoming the first “advanced economy” to have missed a loan payment to the International Monetary Fund (IMF) in the IMF’s 71-year history. The reasons behind this are complex (for an explanation of what happened and why click here), but suffice to say, the problem hasn’t gone away and will certainly continue to periodically raise its head in the coming years.
Black Monday
24th August saw some of the biggest single day stock market losses since the Global Financial Crisis in 2008.
The reasons behind it are multiple and varied, but largely stem from concerns over whether China is able to sustain its historically high level of economic growth. Things haven’t improved much for China since August – growth was reported to have fallen to 6.9% in the third quarter of 2015 – the first time it’s fallen below 7% since 2009 – while the job market is also shrinking.
However, the Chinese slowdown is much more complex than first glance would appear to show – a slowdown in the country’s traditional economic contributor, namely manufacturing – disguises a boom in its services sector. This could just be the latest phase in China’s coming of age.
The black stuff
One man’s ceiling is another man’s floor. The low price of oil (Brent crude hit its lowest level since 2004 on Monday this week at $36.05) has been a huge boost to oil importing countries. Europe, in its fragile state, has been a particular beneficiary – but a worrying drag for those economies dependent on a strong price.
There really is no telling what will happen next year or five years from now. The forces driving prices don’t seem to be changing – countries, like the US, which used to import large quantities of oil, are now producing more and more of their own due to fracking and at the same time vehicles are becoming more energy efficient.
Lower levels of growth – from Europe to China – is also dampening demand, so prices really may not recover in the near future.
The final Act
They’re going to do it this time, no? This time then? They have to do it this time…?
Like a bad soap, the “will they, won’t they” question whether the US Federal Reserve would increase interest rates played out for a little too long this year.
The eventual sigh of relief was heard by the International Space Station’s new resident Tim Peake when, at long, long last, the Fed announced a rise in interest rates on Wednesday 16th December.
The impact was, predictably, mooted from markets. Despite newspaper headlines screaming of an “historic moment”, the deed had been priced into markets so long ago it barely made a ripple.
So, what have we learned this year? Everything changes and everything stays the same.
The predictable unpredictability of investment markets always makes for a good story in retrospect – the key is not to become too much a part of the story as it happens.
A personal stand out moment for me was listening to one of many thousands of Chinese investors who had taken the decision to sell out of his shares on Black Monday – therefore losing his entire life savings. It was too late to scream at the TV, the mistake had been made – he was a part of the story.
Our advice? Have a plan, stick to it and watch from the sidelines. There will be good years and bad – but if you don’t try to second guess any of it, you’ll probably be all right in the end.
