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OPINION

Question time

Question time
December 15, 2016
Question time

Yet, while the debate over the pros and cons of Brexit or President Trump rumbles on, and attention turns to European political risk looming in the year ahead, it turns out that on the whole 2016 hasn’t been such a bad year for investors after all. Take a look at our statistics page and see for yourself. Most of the markets and commodities we watch have ended the year well in the black.

Even the UK’s key indices have largely recovered their poise after the shock referendum result, and for savvy investors the brief sell-off proved a wonderful buying opportunity. Braver contrarians will also have benefited from rekindled interest in the commodity complex, which had proved a drag on UK markets for two years, and even the battered supermarkets have staged a spectacular recovery, despite lingering fears of an inflation-driven squeeze on consumer spending and the raging discount wars. Even long-out-of-favour value strategies have started to mount a comeback.

The lesson here is an old one – that buying at the point of maximum pessimism, or more sensibly when it’s clear that point is behind us, can sometimes be a good strategy. Whether it will be a good strategy for 2017 is less clear, though, especially as most of the current pessimism is either political and discounted by the market or centred squarely on the bond market, which is already suffering as a consequence of the anticipated Trump reflation.

In fact, on equity markets the prevailing sentiment is optimism – so much of it in fact that US markets are scaling never before seen heights, not least the Dow’s assault on 20,000 points, which must be leaving investors giddy for the lack of oxygen. And I do wonder if the altitude is affecting investors’ sense of perspective: just as widespread fear can signal an imminent upward reversal, so unalloyed joy – because that is the reaction of many to the Dow’s current boom – should remind us to be careful.

There are certainly many difficult – and related – questions we need to grapple with right now. Such as, will Trump and other leaders really deliver on their rhetoric and unleash a fiscal splurge that ends a decade of central bank dominance and finally delivers inflation? Will geopolitics take a turn for the worse, and – along with Brexit – put a nasty dent in global trade? And will markets once again take all of this in their stride, or will ever expanding valuations start to fray investors’ nerves?

The answers are not immediately obvious, but we hope this bumper edition gives you enough clues to help you steer your way through the financial obstacle course 2017 is almost certain to present. Merry Christmas!