Let’s start on a positive note, though – even if it is one tinged with caution. This week we reveal our 2016 tips of the year, and once again I think it looks like a solid set of shares that are relatively well placed to handle whatever trials and tribulations the market throws at us. That’s no accident, and is a continuation of the approach we took last year, when our 8 selections delivered an 20 per cent return – significantly in excess of even the best performing UK index (the Aim 100, up 13 per cent) and most active managers (the funds we selected did pretty well too: see page 46). Our new selections also offer a nice income angle – a welcome characteristic in a world where growth is hard to come by (and which, as Chris Dillow explains on page 16, investors are prone to overpay for) and with interest rates hardly likely to rise quickly enough to offer any respite for savers. Playing it safe seems a sensible strategy in troubled times: as Eric Chaney, head of research at Axa Investment Management, puts it, “when the outlook is poor, anything can generate high volatility”.
This view is supported by the ‘anythings’ we have already seen in 6 days of 2016. China’s stock market has suffered a collapse once again – predictable, but nevertheless sending ripples across other global markets. China as a whole is likely to remain in the spotlight this year, if only due to the influence it exerts on commodity stocks, and particularly miners – some suggest they have reached their nadir, and that as a result the FTSE 100 should perform far better over the next twelve months than it did in 2015. That seems a wild stab in the dark to me, given that no one can really be sure what is going on in China’s economy. Geopolitical uncertainty is also rising in the Middle East, not least in the recent escalation in tension between the two giants of the region, Saudi Arabia and Iran. That saw brief respite for the oil price, but its slump has subsequently continued to the lowest level in a decade – and while I still believe the price will rise sharply at some point, couldn’t possibly predict when. Be careful of false dawns.
Of course, markets are not necessarily at the mercy of such mayhem. But they are always afflicted by sentiment. So even if you’re of more optimistic character than I am, you should not ignore the fact that the prevailing mood as we enter 2016 is ugly, with little to suggest it won’t get uglier still. I hope I am wrong, but am prepared for the worst.
