Is The Year Of The Monkey A Year Of Turbulence In The Financial Markets?

When I was growing up, the classic Chinese tale Journey To The West fascinated me greatly. The tale is about the adventures that the Monkey God Sun Wukong and his master and fellow disciples had experienced.

There are two takeaways that I have from the story. One is that the life of Sun Wukong seemed like a never-ending adventure; wherever he was, troubles and crises would arise. The other is that the Monkey God is a real force to be reckoned with; in one of the storylines in Journey To The West, he almost destroyed a heavenly kingdom singlehandedly.

With that as a backdrop, it was very interesting for me to see that the start of the Year of the Monkey had been met with a new wave of market turbulence.

On Wednesday, the first trading day of the Monkey year, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), ended with a 1.6% decline. As of the time of writing today (3:40 pm), the index has continued its decline and is down by 0.8%.

Will the market turmoil continue throughout the year? It’s hard to say, but here are some of the key developments that I think investors need to take note of in the Year of the Monkey.

A slowdown in China and its aftermath

The possible slowdown in economic growth in China is starting to look increasingly likely to happen. China’s government has set an economic growth target of 6.5% to 7% for 2016 after seeing its economy grow by 6.9% in 2015, the slowest pace in 25 years.

There are many countries around the world – Singapore included – that see China as one of their largest trading partners. The impacts of a shrinking growth rate in China is something worth thinking about.

The implosion of the Japanese economy

Abenomics was praised as the best hope for a revival of the Japanese economy back in 2013. That hope, sadly, seems to have been completely misplaced given that the Japanese economy has refused to improve; there was negative gross domestic product (GDP) growth in the country in several quarters in 2014 and 2015.

Moreover, the Bank of Japan had also recently made the desperate move of pushing the country’s benchmark interest rates to negative levels.

As the third largest economy in the world, a collapse in Japan could mean a grave outlook for everyone else around the globe.

Oil is now cheaper than … everything

Oil has now broken below the US$28 per barrel mark, which works out to roughly 25 Singapore cents per litre. The low oil price is hurting oil producers and other companies that provide various types of services to the oil & gas sector.

Singapore-listed companies such as the rig builders Keppel Corporation Limited (SGX: BN4) and SembCorp Marine Ltd (SGX: S51) have not been spared from hits to their businesses.

The collapse in the price of oil has also hurt nations that depend on oil-production revenue to maintain their fiscal budgets. Social unrest could possibly stem from a loss of revenue in these countries.

Foolish Summary

What you’ve seen above are all possible areas of concern for investors.

How might the market react when any of these developments worsen? Will the Year of the Monkey be similar to the story of the Monkey God, with one crisis after another?

Thing is, no one knows for sure. But, if you can keep your cool during market declines, invest for the long-term, focus on the underlying business of the companies you’re invested or interested in, and shy away from the temptation of using leverage to invest, you should be able to increase your odds of success. Who knows, you might even be able to enjoy the fruits of your investing labour by the time the next Monkey Year arrives 12 years later.

Happy New Year everyone!

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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.