Strawberry Invest’s Review of 2015
Firstly, Happy New Year from Strawberry Invest! Before 2016 gets into full swing, we’ll take a brief moment to look at the big stories and events that shaped financial markets in 2015.
Markets had a strong finish to 2015, after what has been a turbulent 12 months. The FTSE 100 finished down approximately 5% over the year, with the majority of those losses coming in the last six months. However, the first half of the year saw a new high, with the index reaching more than 7100 points.
The weakness in the FTSE 100 was notably affected by the poor performance of commodity and oil stocks, which make up a significant part of the index. It took the market some time to realise the full implications of the oil price collapse that started in June 2014. Initially, many commentators believed that the low price would be short lived, with US shale oil production falling off quickly and demand increasing.
However, the increases in efficiency that has been achieved by oil companies, notably in the US, has broadly taken the market by surprise. Many companies have been forced to continue supply at very low prices, to service the significant debt that was built up over the boom years of $100/ barrel oil. The need for cash flow for both companies and countries has meant that where the market as a whole has required a reduction in supply, supply has increased, exacerbating the problem.
The second major theme of 2015 were concerns over China. Weaker than expected demand in China aggravated the falls in the oil price; however, it was the leading catalyst in the commodity market selloff. The price of iron ore, the main component in steel production, steadily fell from over $130 to $40/ tonne, over the course of two years. A notable example of the plight of commodity companies is the FTSE 100 listed Glencore. The company was listed at the height of the commodity boom but has since lost 85% of its value, as investors became concerned by the level of debt within the company.
Finally, the much anticipated US interest rate rise came to pass in December, with a 0.25% increase. So far the market has taken this well, although there has been some concern with liquidity at the high-yield end of the market. Investors were well prepared, and the rise was almost 100% expected. Many now anticipate that there will be further, steady rises in the interest rate over the course of the year, perhaps taking the US rate to 1.5% – 2% by 2017. Further rises will be a tougher test for the stability of the debt markets and the heath of the US/ global economy.
|UK 10 Year Gilt Yield||1.839||1.895||0.056||3.05%|
(From week beginning 18th December)
Economic news flow for the coming week will be fairly quiet, however, US non- farm payrolls for December will be released. Feel free to contact us if you require any assistance with investing for the first time, want to discuss any investment risks or any help in understanding the above discussions.