After a torrid start to 2016 for markets, should we expect the rest of the year to be just as bad?

KOSOVO-ANIMALS-BEAR
Will markets remain poor for the rest of 2016? (Source: Getty)

Paul Markham, global equities portfolio manager at Newton, says Yes.

Given uncertainty in the global outlook, the disconnect between the performance of markets and underlying economies since 2009 and distortions in financial systems engendered by increasingly unorthodox monetary policies, 2016 may be a year investors choose to forget. While market volatility will persist and rallies could be violent, the underlying picture remains tough. US manufacturing is struggling to grow, China is wrestling with the transition from low-cost exporter to domestic consumption-oriented economy, and politics are hindering policy-making in the Eurozone. Meanwhile, collapsed commodity prices represent a headwind to emerging economies. The fate of markets has become increasingly reliant on the resourcefulness of central banks, with negative interest rates the latest policy tool in fashion. These represent a significant headwind to the profitability of banks, and thus the supply of credit to economies. As ever, money-making opportunities will present themselves, but a consistent upward trajectory for equity markets may prove challenging.

Tom Stevenson, investment director at Fidelity Personal Investing, says No.

I have looked into the bear markets (falls of more than 20 per cent) for the FTSE 100 since the index’s launch in 1984. They fall into two camps – those that turn out to be pauses for breath in an ongoing bull market, and those that foreshadow a more serious collapse in share prices. For a bear market to turn into something worse, one of two factors needs to be in place: either valuations at the previous high were excessive, or the economy is heading into recession. The 2000-03 slump was the first of these, while 2008 illustrated the second. Today’s bear market feels more like the other corrections that have appeared with reasonable regularity throughout the past three decades. It is largely driven by sentiment and some specific forced selling by sovereign wealth funds hit by the slide in the oil price. For that reason, I think the odds are in favour of a rebound from here during the rest of 2016.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles