I appeared on Channel News Asia again this morning at 6:20am SGT, via Skype. My questions and my responses in the form of brief notes are below:
Q1. We saw a bruising sell-off in global equity markets on the first trading day of the year. Will 2016 be a tough year for stocks?
I think so yes.
Global equities, especially in the US have enjoyed a relatively solid run in the last 5 – 6 years so it shouldn’t come as too much of a surprise to see some easing off in equities. I think there are growing concerns about earnings throughout the year and especially in the 2nd half as the Fed may have moved for a 2nd or 3rd time with rates.
So we are seeing a changing landscape with the Fed moving for the first time in over 9 years.
Q2. The New Year has not been kind to the Australian market. Will we see more losses today?
No it hasn’t started off too well however I would expect a mixed bag today.
Most European indices were higher and we have had a small higher lead from the US so after a weak start to the year, I would expect a slight rally today.
The SPI futures is up a modest 7 points this morning indicating a slight rise.
Q3. Any sectors in the market that you are hopeful will outperform in 2016?
If we are expecting weaker conditions in 2016, you can reasonable expect some of the more defensive sectors to move steadily higher.
These are similar to some of the sectors that have already moved well last year in the face of a struggling ASX200 index. Sectors like Utilities, Health Care and Property Trusts, of which Australia has a large number of.
On the other side, I can see some continuing difficult times ahead for some sectors like energy, materials, mining and financial.
Q4. China is Australia’s major trading partner. What can we expect from the Australian economy in 2016?
I think there are ongoing concerns about Australia’s economy as it transitions away from the mining boom that served the nation so well. The RBA were forced to move twice last year and cut the OCR to a record low 2% and many believe that will move again this year at least once.
Whilst Europe stole the headlines for most of last year, China remained a simmering story that was always there. China remains a genuine concern I don’t think we will see negative growth in Australia in 2016 – I would expect it to remain quite subdued.
Q5. The Australian dollar has fallen about 24% against the greenback since the middle of last year. Can the Aussie defied expectations for a fall below 70 US cents?
I think in the longer term we might see the A$ drift down below 70 US cents and be trading anywhere between 65 – 70 cents. If you look at the expectations of the Federal Reserve and the RBA, they are moving in opposite paths. The Fed just moved last month and are now looking to do so again this year. The RBA have no plans to increase rates any time soon.