What 2017 holds for private investors

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2016 has been a defining year in which we moved away from the conventional into a world of uncertainty
At the beginning of the year, the idea of Trump presidency or Britain voting to leave the EU was unimaginable. In January, the odds of Brexit were approximately one in three and Trump becoming the republican nomination was a staggering 200 to 1 with many bookmakers. However, both the UK and the US moved away from continuity and have chosen a new path.
Pundits had stated that these political shocks would result in significant market drops and volatility across the global markets and we have seen neither. A short term drop in the markets was observed following Brexit, however we then observed a significant rally and nor did we see the expected drop from the post Trump victory. In fact, the FTSE 100 is up approximately 7% for the year in comparison to 2015 which showed losses of almost 9%; these unexpected gains demonstrate that 2016 has been ‘The Year of the Unexpected’.
“A few fundamental points must be taken into consideration when looking at the gains seen on the FTSE 100” says Ranjeet Singh, the CEO of London Stone Securities, “first of all, we know that not all stocks have seen the same rise, for example the increase in the FTSE 100 was far greater than that of the FTSE 250 which has only seen a very modest increase of just 0.3%”.
“This difference I believe has come about because this year we have seen a momentous fight- back in commodity, mining and oil stocks with some FTSE100 companies up over 500% on the year, something which nobody had predicted. As an internationally biased group of businesses, the FTSE 100 has also benefited greatly from the weak pound. Currently approximately 75% of profits seen by companies in the FTSE 100 are from abroad but profits due to weaker currencies have no real fundamental value; any recovery in sterling is likely to see the gains taken back from private investors”.
When discussing key themes for 2017 Ranjeet mentions continued uncertainty and explains why:
“There are lots of things to consider here – for a start there are elections in Europe which could see the far right gain some traction in France and we could even see Germany’s electorate dispose of Merkel. If that was to happen it would be a massive upset for Europe which could quite easily undermine the entire European project. QE is also now on the retreat whilst there is an imminent rate hike on the cards by the Fed, which suggests that the market is almost certainly heading to choppy waters “.
When asked what this will means for the stock market, Ranjeet’s reply is clear:
“Article 50 is still up in the air and recent comments by former Prime Ministers Tony Blair and John Major questioning the people’s democratic choice to leave, really isn’t helping matters. We feel that the pound is over-sold and likely to recover and Trump remains an unknown quantity until he takes office. As a result, investors may seek safe havens which could hurt the equity markets and bring bonds finally back in from the cold.”
It’s not all bad news however as equities should continue to benefit by default whilst interest rates remain low in the UK and around the world. Couple that with a stagnating property market and inflation also set to increase, and equities should still be in demand for 2017 as disgruntled savers try to find a home for their cash. If that does happen, we see the FTSE 100 outperforming the FTSE 250 again.
However, it is key to remember that if we see either a loss or a gain on the FTSE it is rarely the individual investor who wins.
According to several recent high-profile studies, the average investor realised an average annual return of just 3.8% a year over the past 30 years, which underperformed the wider market by approximately 5% per annum.
Ranjeet goes on to say “Since 2007, uncertainty is something that most investors have come to terms with so it isn’t anything that they should be afraid of if managed properly. Most importantly uncertainty goes hand in hand with opportunity. It’s all about positioning yourself strategically in the right sectors and companies ahead of the big announcements and being proactive now rather than reactive after the market news is out.”
London Stone Securities is an FCA regulated Advisory stock broker service based in the heart of the City of London. To find out more about them or Ranjeet’s outlook including his ‘Top 5 stock tips for 2017’ please email rsingh@londonstonesecurities.co.uk

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