It is fair to say that 2015 is certainly a year that will be hard to forget for many investors.
In January, Greek elections thrust Alexis Tsipras into power and quickly made way for a heightened worry of Grexit. Not long after the Swiss central bank dropped its currency peg. Japan and Europe rallied in tandem with their money printing programmes.
Oil continued to plummet throughout most of the year and the market became increasingly jittery about slowing Chinese economic growth, which culminated in the Black Monday sell-off after a surprise devaluation in the yuan.
In this article, we hear from a panel of experts on what investors should have learned from these and other events and trends of the past 12 months.
Richard Buxton – ‘Markets are not always rational’
First up, Richard Buxton (pictured), chief executive of Old Mutual Global Investors and manager of the £2.3bn Old Mutual UK Alpha fund, says the failure of commodity markets to snap back is evidential of a an “oversupply stickiness”.
“It takes a lot longer for there to be a supply response to price weakness than you would think is rational in commodity stocks like oil and mining,” he said.
“Some of them are at levels where you would have expected a lot more mine closures and mothballing by now if things were being managed rationally. But, we have seen less of it.”
“It might be because higher cost mines in China are being kept going for employment reasons. You can also apply it [the trend] to food retail. The degree of supply response has not been as marked as you would have expected.”
Performance of indices in 2015
Source: FE Analytics
Buxton says he thinks it is being caused – in part – for both industries that capex plans are “harder shelve than in in previous cycles.”
Adrian Lowcock – ‘Be wary of valuations and avoid value traps’
Lowcock, who is head of investing at AXA Wealth, adds to Buxton’s point that just because something has fallen hard does not mean it is going to necessarily rise any time soon.
“The price you pay for something is a big driver on the return you will get. As markets reached new highs or bubbles investors were increasingly likely to get caught out,” he said.
“Something may look cheap now but it can still get cheaper. As we saw in the oil and mining sectors, things can get a lot worse before they get better.”
James McDaid – ‘China is a big deal for all investors’
GAM investment manager McDaid says 2015’s big lesson was just how important China has become not just for the global economy but also for financial markets around the world – and by extension the vast majority of risk assets.
“Of course, China has been the world’s factory for a while now, however 2015 saw it become an important consideration in global central bank decision-making,” he said.
“Surprisingly, Janet Yellen referred to China when she announced another rate ‘hold’ in September. Furthermore, the IMF announced that the Chinese renminbi would join the US dollar, the euro, the British pound and the Japanese yen in its ‘Special Drawing Rights’ basket, strong recognition of China’s place in global economics.”
In August, the People’s Bank of China’s (PBOC) decision to adjust its currency peg led to concerns of a global currency war as countries fought for export markets. After 2015, investors have learned that China, and particularly decisions by of the PBOC, can move global markets just as much as any of the other big players.
Performance of index in August 2015
Source: FE Analytics
Rob Morgan – ‘Watch out for geopolitics’
Charles Stanley Direct’s Rob Morgan (pictured), meanwhile, says the huge focus on central bank policy minutiae over recent times has overshadowed political risk.
“In light of the positive market reaction since the Fed decision, is that the real risks for markets are geopolitical rather than related to monetary policy: the oil price, Brexit and other eurozone issues, Trump presidency,” he said.
“These are the kind of events that could unsettle markets; it is clear that monetary tightening will be slow and gradual and for me less of a concern now. Rather than second guessing the Fed, we should also be more focussed on company earnings and be alert to the fact that they have struggled to make progress.”
Jason Hollands – ‘Follow the (easy) money and forget about politics’
Jason Hollands (pictured), draws two lesson from 2015. Firstly that quantitative easing is still driving certain markets.
“My main observations would be that what central banks do in terms of providing or restricting liquidity trumps economic fundamentals when it comes to driving the direction of markets and that will likely continue into 2016 as the US tightens while the European Central Bank keeps its foot on the gas in Europe,” he explained.
“In very simple terms, follow the liquidity flow and focus on those markets where policy is loose e.g. Europe.”
Secondly – somewhat contrast to Morgan – Hollands says that elections have a very unclear effects for investors’ portfolio.
“Another lesson during 2015 was the risks of making big investment calls around elections. At the start of the year ‘hung parliament’ or a Labour government was a given and some asset managers were even zero weighting the UK based on this risk – yet we ended up with a majority Conservative government.”
“Surprises like this aside, I think investors too often overbake expectations of the pace of change that will flow from elections.”
Mark Dampier – ‘Be wary of the experts’
Last up, Hargreaves Lansdown head of research Mark Dampier says that his biggest lesson was no to trust the experts.
“Don’t listen to the experts have been completely wrong about the economy and markets,” he said. “Just think of interest rates in the last few years and all that stuff on bonds – that it was all going fall apart and whatever – and just look at how wrong every ones has been.”
