Stock Market Predictions For 2016: The Optimist’s View

Every year during December, there will tend to be talks given or reports published by brokerage firms, investment houses, and banks on what is in store for the following year. Sometimes, even geomancers (practitioners of the Chinese art of Feng Shui) will join in the fray with their financial predictions for the year ahead.

At the Motley Fool Singapore, we are not a big fan of short-term predictions of the financial markets, be it from world famous economists, analysts, or Feng Shui masters – and that is because short-term market forecasts are often wrong.

However, just for the fun of it, seeing that this is the holiday season, I had crafted two predictions for the stock market in 2016. One looks at the things that can go right and paints a rosy picture for the year ahead. The other is depressingly bearish with me taking into account the things that can go wrong.

You can check out the worst-case scenario here. But for now, let us all be optimists and go along for a positive thought experiment.

An imagined massive recovery ahead

After a sustained downward trend in the prices of most commodities, demand for major commodities like oil, palm oil, and steel would begin to rise.

Also, China will implement more easing in its economy and successfully return to its high-growth days. This is in addition to Quantitative Easing in Europe creating positive effects in its economy. The resurgence of China and Europe will add to the increase in demand for major commodities in the world.

As oil prices recover, activities in the oil and gas sector begin to gain momentum, which in turn could lead to growth in the order books for companies such as SembCorp Marine Ltd (SGX: S51) and Keppel Corporation Limited (SGX: BN4).

With crude palm oil prices climbing above RM3,000 per ton from current levels of less than RM2,500, palm oil plantation owners like Bumitama Agri Ltd (SGX: P8Z) and First Resources Ltd (SGX: EB5) will experience record revenue and earnings in 2016.

Let’s now step outside the zone of commodities and look at Singapore. We narrowly missed a technical recession in the third-quarter of 2015, but trade and commerce can improve. With that, the government decides to lift the cooling measures in the property market here. The removal of the cooling measures lead to renewed interest in the property market, and major real estate companies such as CapitaLand Ltd (SGX: C31) and City Developments Limited  (SGX: C09) can benefit greatly.

Foolish Summary

The difference between my predictions here and most of the other predictions that you will hear or read about is that I am quite sure my predictions are most likely wrong. I have no crystal ball that can tell me the future, but by conducting thought experiments, as I just have, we might just have a better mental preparation for what lies ahead in 2016. Happy holidays, Fools!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Keppel Corporation and First Resources.