Trying to call the market is often described as a ‘mug’s game’, which makes sense given all the variables which can affect the global financial system such as the weather, a miscommunication from a high ranking official or trades made from a semi-detached house in Hounslow.
That being said, a world in which every manager sat on the fence about the direction of the markets and purely focused on ‘bottom-up stock selection’ would be rather dull, wouldn’t it? It would also mean that many financial journalists would be out of a job…
Therefore, following on from last week’s article where we highlighted the most successful fund manager predictions of 2015, we now look at the forecasts (and the brave individuals who made them) which have so far been way off the mark.
Of course, before any of us scoff at some of these outlooks, it must be said that 2015 is by no means over and with a number of macroeconomic headwinds – and potential tailwinds – on the horizon, many of these predictions could end up being correct.
“Oil price will average $70/bl in 2015” – Investec’s Tom Nelson and Charles Whall
The huge falls in the oil price were a real curve ball for investors in 2014, as the commodity fell to just $45 a barrel in the second half of the year thanks to global oversupply, the US shale gas revolution and OPEC’s decision to not step in and manage the market.
While most forecasters didn’t expect a significant rebound in the oil price, Tom Nelson and Charles Whall of the Investec Global Energy fund told FE Trustnet in January that there were a number of reasons why the oil price would start to move upwards again.
Their reasons were clear: OPEC would step in if the oil price stayed too low, demand would increase on the back of a lower price and supply would be cut.
“We forecast that Brent oil will average $60/$70/$80/$85/bl in the four quarters of 2015, to give a full-year average of $70-75/bl, representing 40 to 50 per cent upside in the commodity price from today’s level,” they said.
Performance of index in 2015
Source: FE Analytics
As a matter of fact, in the first five months after their comments the oil price did rebound close to 40 per cent. Nevertheless, thanks to concerns over China’s growth and the recent agreement with Iran, the commodity’s price is now down 2 per cent year to date following its 30 per cent falls since May.
There is still time for the oil price to rebound once again, but given it currently stands at $48/bl, it would have to be one almighty spike over the coming few months.
“No election result will be good for markets” – Henderson’s Bill McQuaker
Let’s be honest, very few of us were expecting a Conservative majority in the UK general election.
Well, that certainly seemed to be the case among fund managers as FE Trustnet was littered with articles from experts who were positioning for an uncertain political environment and the negative impact it would have on UK assets. 
We could, therefore, have included a whole host of experts such as Neptune’s Robin Geffen or the BlackRock Investment Institute. However, FE Alpha Manager Bill McQauker (pictured) has made his way onto this article as he made the bold prediction that no result from the polls would be good for the FTSE.
“It’s quite difficult to conjure up an election result that plays well with financial markets,” McQauker said.
However, as investors will know, the likelihood of business-friendly government for the next five years caused a snap rally in the more domestically-orientated FTSE 250 and FTSE Small-Cap with certain IA UK All Companies funds delivering double-digit gains since.
The likes of Dan Nickols have now also called the UK a “beacon of relative certainty” thanks to the election.
To be fair to McQuaker, his point was that with a Conservative victory comes the uncertainty surrounding the UK’s relationship with Europe and so we will have to wait and see whether his prediction will come true.
“FTSE 100 won’t hit 7,000 any time soon” – Rowan Dartington’s Guy Stephenson
Sticking with the UK and when the FTSE 100 broke its historic record of 6,930 (which was last seen at the peak of the dotcom bubble in December 2000) in late February, many were hoping it would continue its march through the psychological 7,000 barrier.
Guy Stevenson, director at Rowan Dartington Signature, was less than optimistic about that potential outcome given headwinds in the form of Greece, Russia and most importantly the imminent UK general election.
“The rhetoric is only going to build from here as we approach 7 May and with it the nervousness in the markets. Focus on fundamentals is going to be very blurred over the next two months and therefore a decisive move above 7,000 is unlikely,” Stephens said on 15 March.
This turned out to be a particularly poorly-timed comment as just five days later, the FTSE 100 did indeed break through 7,000. In fact, it peaked at 7,103 in late April. Again, though, Stevenson’s concerns about UK large-caps seemed to have been well-founded.
Price performance of FTSE 100 since Stevenson’s comments
Source: FE Analytics
According to FE Analytics, the FTSE 100 is down close to 4 per cent in price terms (without dividends reinvested) as macro headwinds have increased.
“No bubble in Chinese stocks” – Matthews Asia’s Andy Rothman
Prior to these comments made by Andy Rothman, investment strategist at Matthews Asia, the Chinese equity market had delivered gains of close to 200 per cent in the previous 12 months as a result of the Shanghai-Hong Kong Stock Connect programme, easing from the Chinese authorities and the anticipation of further easing on the part of investors.
This had led many experts to warn against buying into the Chinese market as, not only had the index delivered phenomenal returns, but valuations within the ‘A’ (or domestic) market were looking very frothy despite slowing economic growth.
Nevertheless, in late May, Rothman told FE Trustnet that while the gains had come more quickly than he had hoped, there weren’t signs of a bubble as the rally was built on China’s enormous household savings rather than debt.
“Over the last five years or so China has had one of the best performing economies in the world, if not the best, but it has also had one of the worst performing stock markets in the world and now the stock market is starting to play catch up,” Rothman said.
“While there are certainly a handful of stocks that you can identify that have raced ahead too quickly, I would say overall we are still in the catch up phase. There is more room for it go on.”
Performance of index since January 2014
Source: FE Analytics
While Chinese equities did continue to rise over the following two weeks, they then fell a hefty 32 per cent in a month as a result of sustained selling and emergency measures from the country’s central bank.
Though the market has recovered somewhat, the index is still down 18 per cent since Rothman spoke to FE Trustnet. Certainly, when you look at a graph of the Chinese market since January 2014, it does seem to have been a bubble of sorts.
“Investors haven’t missed the emerging market rally” – Franklin Templeton’s Dr Mark Mobius
This prediction is intrinsically linked to the previous one, given China’s presence within the emerging market asset class.
While emerging market equities had been boosted by the significant rally in China, the rebounding oil price had pushed up sentiment towards other major developing markets such as Brazil and Russia.
It meant that since the start of the year up until FE Trustnet met with Franklin Templeton’s emerging market guru, the MSCI Emerging Market index had returned some 16 per cent. Again, concerns were raised about the outlook for emerging markets, but Mobius said investors weren’t too late if they bought in.
“I see this [the rally] continuing because if you look at the valuations of emerging markets now, it is lower than the US market and so there are a lot bargains for internationals investors to buy. That is the reason we are seeing the movement from the US to emerging markets," Mobius said.
“I think it will continue throughout this year and as Brazil recovers and if the sanctions on Russia are released. Of course India is still going through a revolution of reform under Narendra Modi – this is going to be another aspect that will push the markets higher.”
Performance of index after Mobius’ comments
Source: FE Analytics
A few days later, though, and the index started to trend downwards in a big way as the factors which had driven the market in the first place (higher oil prices, bullishness on China and wider global equity market) started to reverse.
In fact, since the comments were made, the index is down 20 per cent.
