End of Year Reflections
As we approach the last quarter of 2015, it is appropriate to reflect on the highs and lows of the financial year. This was a year of the “haves” and the “have nots”, namely those economies that are receiving support from their central banks and those that are not. The European Central Bank decided in January to inject capital into the financial system as a stimulus to restart growth in their economies, which prompted most European markets to rise dramatically in the first half of 2015. This was mirrored by many other leading stock markets, which all traded towards historic highs by the end of April. Some rises, like the Chinese economy, were built on leverage and speculation, whilst others were built on solid corporate earnings results; having benefited from lower financing costs due to rock bottom interest rates, and or, currency exchange rates that made their exports much more competitive. The combination of both, as we saw in many Eurozone nations, created an operating environment in which many companies thrived.
We went into the year positive on the US and the UK economies and stock markets, but mindful of the reliance on financial services and resources companies, especially in the FTSE100. This was well founded as we have seen oil and commodity prices trade at low levels all year, and this has been reflected by the performance of both economies and the companies that rely on them. As the US economy has looked strong for many months, it has now reached the point where interest rates need to rise to ensure it does not overheat. The likelihood was that rates would have risen by now, if concerns over China growth had not spooked the markets and meant that the Federal Reserve were forced to delay once more. In the UK we have seen excellent performance from the mid and small cap sectors where innovation and growth are key to their success.
Whilst we have seen the politicians and central bankers play a key role in 2015, the use of quantitative easing helped to smooth the curve that has had several obstacles this year, most of which originated in political comings and goings in Athens. Once the Greek bailout had been secured, then people could concentrate on the real story within the Eurozone, namely that the Euro has fallen dramatically over the course of 2015, making the area’s exporters very pleased as their goods now became more competitively priced.
Twelve months ago, we talked of lower oil prices benefiting consumers as both fuel and food prices would fall, and this has been evidenced during the year. These falls allowed inflation in the UK to bump along at almost zero, which in turn allowed not just a continued period of rock bottom interest rates but also an uptick in discretionary spending. Looking towards 2016 we expect the first of several UK interest rate rises, which should lag the first US rate rise in what we forecast to be December 2015, by around 3-6 months.
In summary we have strong US and UK economies that look able to sustain fiscal tightening sooner than later, added to support for the Eurozone as the central bank continues to purchase key assets coupled to what we expect more positive economic data in China. All of which should give investors more confidence. However the speedbumps will be ever present, whether that be in the form of currency devaluations, political events and/or stock market shocks, and it is the OCM way to navigate this in a manner that puts capital preservation at the forefront.
When structuring your financial affairs you should seek independent legal and financial planning advice. If you would like to discuss your options in more detail, please contact OCM Wealth Management on 01604 621 467.