The year has started with many asset prices falling, especially the more volatile assets such as oil and emerging market shares and currencies. The latest weakening of the Chinese currency has had a negative affect.
There will likely be higher than average volatility this year but that should not be of much concern to S&I clients. That is because we know that we help our clients have strategies in place to cope with volatility and that the portfolios we create can provide more diversification and reduced levels of volatility in comparison to direct investment in to a few asset classes.
In commodity markets Brent crude is down at 2004 levels. In a wider context with continuing concerns over the growth level of the Chinese economy we have returned, just now, to similar issues that caused values to fall in August last year. These factors are making it harder for Central Banks to meet their inflation targets, strange to think that we want some inflation!
Whilst there may be weakness in the Chinese economy the economy in the U.S. is doing well. In December the new jobs created exceeded the most optimistic forecasts and with the potential for faster wage growth this would help consumer spending, the biggest part of the economy. As well the Euro area has entered a year that many analysts see as one of solid economic growth with growth in the final quarter of 2015 being the fastest in 4.5 years.
2015 was a very tough year to achieve good returns and short term timing would have been an issue for new investors. That said the world’s most famous investor, Warren Buffett, saw the share price of his "investment company" fall 12% and 2016 has seen further weakening. Any positive returns achieved by portfolios should be seen as a reasonable result.