Thursday, 29 December 2016

2016

Today investors fret over elections, referendums, a slowdown in China, euro zone debt… the list is endless. Meanwhile journalists are always full of doom and gloom – it sells more papers.

During the week Sir Mervyn King [Fellow of the British Academy] former Governor of the Bank of England spelled out why we should be more confident in Brexit. We could do with a few more stalwarts to promote the same message after the remainers message of doom & gloom never materialised.

2016 has been the year of the improbable. According to Ladbrokes, a £1 bet on Leicester winning the Premier League, the UK voting to leave the EU and Donald Trump becoming US president could have returned over £4.5m.

This year feels like a crescendo of events that started with the 2008 financial crisis. Since it bottomed in 2009 the market has climbed what is often termed a ‘wall of worry’. Commentators have continually expected markets to fall, but instead they have climbed higher and higher. However, fear of falling markets has caused many investors to miss out on this bull market. Of course the smart money has been there.

With most investors in pessimistic mode, there is plenty of cash on the sidelines waiting for an opportunity to enter the market. This means that should markets fall by, say, five or ten percent, the dip could be heavily bought. We saw this with the Brexit referendum, where the market’s fall was quickly reversed.

Low interest rates add to the favourable backdrop for equities. In this environment it’s easy to see the attraction of equity income funds, many of which yield from 3 to 5% at present – albeit that unlike the security of cash, your capital will fluctuate, so you could get back less than you invest.

2017 should be a better year especially if the government coughs up a few bob for social services.

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