At first sight, the results from the world’s main share markets in 2016 appear mixed, but that’s before currency effects are considered.
World Index Changes in 2016
FTSE 100 +14.4%
FTSE All-Share +12.5%
Dow Jones Industrial +13.4%
Standard & Poor’s 500 +9.5%
Nikkei 225 +0.4%
Euro Stoxx 50 (€) +0.7%
Shanghai Composite -12.3%
MSCI Emerging Markets (£) +29.5%
Drilling into the raw numbers reveals a few interesting insights:
- The FTSE 100 rise was the first for three years and was mainly due to the dominance of the index by multinational companies whose overseas earnings became more valuable as Sterling declined after the Brexit vote on 23 June. The FTSE 250, which has a greater exposure to UK focussed (medium sized) companies, rose by just 3.7%.
- Sterling had a bad year, which significantly boosted the returns for UK investors in foreign markets. The pound was down 19.4% against the Japanese Yen, 13.8% against the Euro and 16.7% against the dollar. Thus investments in European and Japanese markets were more profitable than an investment in the FTSE 100, despite what the (local currency-based) index numbers suggest. Once again, the wisdom of investment diversification has been illustrated.
- Emerging markets turned in widely different returns, a reminder that looking at just one global emerging markets index (or, indeed, choosing a fund which tracks one overall index) can be misleading. Brazil, which performed badly in 2015 as the markets and its currency weakened in the wake of political scandals, was a star performer in 2016, returning over 90% to sterling based investors.
How will markets perform in 2017?
We know that 2017 will have more surprises in store, but no-one knows what those surprises will be. Maybe emerging markets will have another stellar year, or maybe they won’t. Maybe the FTSE 100 will give us double-digit returns again, or maybe fixed income investments like gilts and bonds will catch everyone out.
As we discussed in our post about financial predictions for 2017, it’s impossible to know what the future holds, and who the winners and losers will be.
If you know where the best returns will come from in 2017 please give us a call and let us know. If you don’t, we can help you make sure your investments are well diversifed. Call us today on 020 8559 2111.
[highlight]The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.[/highlight]
