What to expect in 2016

As 2015 draws to a close, this is the time when investors typically reflect on their positions – perhaps learning from market and subsequent investment performance throughout the year – and strategise for the New Year. Due to market corrections that occurred midway through the year, and ongoing speculation about the Fed’s position on interest rates, this past year has been somewhat constrained for investors. In this article, Shane Oliver, Chief Economist and Head of Investment Strategy at AMP Capital, provides a wrap-up of market performance during 2015, along with comments on the RBA’s recent decision to hold interest rates at 2% and an outlook for the year ahead.

Have markets been good this year?

This year we’ve seen constrained market conditions, which for most investors mean returns have not reached levels seen in previous years. However, there has been good news for those with money invested in international shares on an unhedged basis; they benefited from gains in European and Japanese shares, and in the fall of the Australian dollar. Overall, unlisted assets such as infrastructure and commercial property provided better returns than share markets.

Implications for the RBA interest rate hold

As the economy continues to rebalance in the wake of the mining downturn, The Reserve Bank of Australia’s (RBA) decision to hold interest rates this month has not come as a surprise. For 2016 the risks on rates are all skewed to the downside – it will be very hard to see the RBA raising rates.

The New Year is expected to bring more of the same in terms of constrained growth in Australia and globally. That is, constrained but gradual growth. This is because conditions for a downturn or conversely, for a surge in growth, aren’t in place. Investors holding a balanced portfolio can expect a return of around 7.5 to 8%.

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