Most world stocks markets finished last year in positive territory, despite shock votes in Britain and the US, but the outlook for this year is clouded by looming European elections and Brexit.
The past year witnessed a wave of anti-establishment populism, which saw Britain vote to leave the EU and maverick billionaire businessman Donald Trump elected as US president.
Both unexpected outcomes sparked a brief tumble on global equity markets, but many have since staged a stunning recovery to finish last year in the black.
London’s FTSE 100 gained 14.3 percent over the year, while Frankfurt’s DAX 30 added about 6.9 percent and the Paris CAC 40 won 4.9 percent.
In the US, all three major indices enjoyed robust gains, with the Dow Jones Industrial Average jumping 13.4 percent, the S&P 500 9.5 percent and the NASDAQ Composite 7.5 percent.
Japan’s Nikkei rose 0.4 percent last year, marking the fifth consecutive annual increase and registering its highest year-end close in two decades on optimism over the incoming US government.
Shanghai slumped more than 12 percent on the back of massive capital flight and a languishing yuan currency.
A 50 percent jump in oil prices — fueled in part by the decision of the OPEC to cut production — also supported stocks. Brent rose 52 percent in the year at US$56.82 and West Texas Intermediate climbed about 45 percent to US$53.72.
Since Brexit, London’s FTSE 100 blue-chip index has soared to end the year in record-breaking form, as the British economy shrugged off the impact of the impending divorce from the EU.
“Fears of an imminent UK recession following Brexit proved wide of the mark thanks largely to the resilience of consumer spending,” NFS Macro Consulting Ltd analyst Nick Stamenkovic said. “Indeed, Brexit was viewed as a local rather than global issue, prompting a sharp turnaround in the fortunes of world stock markets.”
Markets also briefly tanked on Nov. 9 after Republican Trump defeated Democrat and market favorite Hillary Rodham Clinton to capture the White House.
Yet Wall Street has since enjoyed a blockbuster run with the Dow Jones Industrial Average making a push toward 20,000 points. In the end, the blue-chip index finished at 19,762.60, logging its best year since 2013.
Markets are pricing in “all the good stuff while ignoring for now potential consequences for the [US] dollar, deficits, interest rates, trade, inflation and the uncertainty principle,” JPMorgan Asset Management Ltd strategist Michael Cembalest said in a research note. “Whether this benign view is accurate or not will be a major driver of markets next year.”
The spotlight is now on upcoming European elections.
The Netherlands heads to the polls in March, followed by France in May, and Germany in the autumn. Further gains by populist candidates would reverberate through Europe as Brussels moves into the thick of negotiations with Britain over Brexit.
VTB Capital PLC analyst Neil MacKinnon also highlighted the region’s banking problem after the European Central Bank called for Italian lender Monte dei Paschi di Siena SpA to receive a bailout of 8.8 billion euros (US$9.26 billion).
Italy’s stock market shed 10 percent over the year.
In the US, investors largely have disregarded worries about the unpredictable Trump, including fears his tough posture towards China could lead to a trade war and that his embrace of Russian President Vladimir Putin could roil international alliances.
However, reality could trump expectations.And expectations are high for Trump’s first 100 days, which are anticipated to include progress on these key policies, said Sandy Sanders, a senior portfolio manager at Manulife Asset Management Co.
“Everyone is going to be ... focused on what’s going through [US] Congress and the Senate and then to the president’s desk and they’re going to want to see deliverables on that tax reform,” Sanders said.
In foreign exchange, many economists predict the euro could slump to parity against the US dollar next year, aided by the US Federal Reserve’s hawkish stance on interest rates.
The Fed’s bullish outlook this month pushed the US dollar to 10-month yen highs and sent it heading toward parity with the euro for the first time since 2002.
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