Stock Market Predictions For 2016: The Pessismist’s Scenario

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 of the things that can go wrong.

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

An imagined world of pain ahead

2016 might go down in history as a horrible year for the world that’s characterised by an escalation of conflict between nations.

Currently, there are already territorial disputes going on between China, Malaysia, Philippines, and Vietnam in the South China Sea. Meanwhile, Russia’s annexation of parts of Ukraine in 2014 has led to on-going tensions between it and another world superpower, the U.S. Then, we’ve also seen acts of terrorism against some Western countries from extremists in the Middle East in 2015.

These could all come to a head in 2016, with armed conflicts between nations taking place in many areas of the world.

Global trade comes to a complete halt, as result causing trading companies such as Noble Group Limited (SGX: N21) and Olam International Ltd (SGX: O32) to lose their businesses and supply chain networks virtually overnight.

Businesses that are useful for the manufacture of war-related equipment, such as the shipbuilders Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) and Cosco Corporation (Singapore) Limited (SGX: F83), are all privatised by governments at huge discounts, resulting in hefty losses for existing shareholders.

The year ends badly.

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, like 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 does not own shares in any companies mentioned above.