What might the share market do in 2016?

2015 was a difficult year for investors, with high volatility and low international growth contributing to a lack of shareholder confidence. But what does this mean for the stock market in 2016?

Predicting the share market is tricky, and not even the most experienced investors know for sure what’s going to happen in the future. However, there are some experienced traders and associations willing to make some observations.

Australian overview

CMC Markets saw a large surge in daily market volatility in 2015, which almost doubled from the volatility range in 2014. High levels of volatility in the daily market ranges are indicative of a low growth environment. With a 7% dividend yield after ranking, the overall performance of the share market in 2015 is flat to slightly down.

Shareholder confidence has fallen by 4% from its level at this time last year, indicating that there is currently significant uncertainty about short-term domestic conditions in the wider investment community.

NAB believes that despite this lack of confidence, business conditions are well above average. They also report that the non-mining sector is in the middle of a recovery, with no non-mining sector industry groups reporting a deterioration of business confidence. The mining sector continues to suffer however. More information can be read in NAB’s monthly business survey and global forecasts.

Global overview

CMC markets believes that the high volatility levels mentioned earlier is due to the US Federal Reserve moving towards a higher interest rate environment, which causes other central banks in major economic countries such as The UK, China and Japan to increase their stimulus efforts, creating cross currents in global investment flows. While a stronger US economy will drive improvement in the global economy in 2016, share market sentiment could fluctuate wildly as a result.

The NAB believes that global growth will remain sluggish in the 3 to 3 ½ % range. The conditions of the advanced economies remains mixed, with upturns in the UK and US markets countered by weaknesses in the Euro-zone and Japan.  There has been a loss of momentum in emerging market growth in countries such as Brazil, which is in the middle of a recession. Crucially, growth in China has slipped from 7.2% to 6.9% over the past 12 months, resulting in falling Chinese import volumes.

NAB has a deatiled analysis of the performance of global economies in their global forecats release.

Market prediction

Despite all of this negative information, financial expert Paul Clitheroe is taking an optimistic approach to the Australian share market for 2016. Mr Clitheroe says that negativity is a favourite with the media, and despite the doom and gloom being perpetuated, the global and Australian economy are faring better than many believe.

“We’ll be swamped by bad news (terrorist attacks, China slowing, low commodity prices) but you won’t hear much about the strong recovery of ‘lost’ economies such as Spain, Portugal or Ireland. The German economy remains a powerhouse, and there is continued recovery in the US. Things are quite OK”.

However there is no denying that consumer confidence is low at the moment, with both 2014 and 2015 trading sideways. Based on the evidence, it would seem that there is high potential for the market to remain broadly sideways throughout 2016. Therefore, according to CMC, the highest returns in 2016 will go to active investors, those who trade regularly and seek to take advantage of market swings, as opposed to casual investors who prefer to sit with their investments. These active investors will be able to take advantage of the volatile market swings in an otherwise stable market.

This may not be the case however. It is important to remember that share markets are difficult to predict. You should consider as many different opinions as possible in order to make an informed choice as to your investment strategy for 2016.

 

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