3 Things Investors Should Watch in 2016

In an interview published near the end of 2015, Howard Marks, a great thinker on the topic of investing and the co-chairman of the investing firm Oaktree Capital, was asked how investors should prepare themselves for 2016. To that, Marks responded:

“The most important thing to do is to assess not the future but the present. Awareness and understanding of cycles is an essential tool for investment survival. That’s why I always say: “We may never know where we’re going, but we’d better have a good idea where we are.””

While it may be tough for investors to predict what the financial markets are going to do, especially over the short-term, I think there’s a need for investors to understand where we stand at the moment and be watchful of any important factors that might impact the market.

So what are some of the things investors should watch for in the rest of 2016? Here are three that I think are important to monitor.

1. The slide in the price of oil

The decline in the price of oil from more than US$100 per barrel in 2014 to less than US$40 at the moment has brought about a significant cut in capital spending throughout the oil and gas industry globally.

The developments in the oil and gas industry have seen huge share price declines occur for most oil and gas companies. For contrarian investors, this space could be an interesting one to watch as big declines bring about the possibility of big bargains appearing.

2. China’s slowing growth

China, given its heft as the world’s second largest economy and its slowing economic growth, is currently one of the main investment themes in the investment community globally.

As investors continue to monitor the growth of China, any negative news suggesting a decline or sharp slowdown in the expansion of the Chinese economy may cause turbulence in financial markets across the globe. For perspective, China’s 6.9% increase in its gross domestic product in 2015, while healthy, is the slowest rate of growth seen since 1990.

By paying attention to this, investors may have the opportunity to buy good companies at attractive prices if there are any negative over-reactions in the stock market to what is happening in China.

3. Interest rates in the U.S.

The Federal Reserve in the U.S. had raised short-term benchmark interest rates there by a modest 0.25% in December 2015. It was the first rate hike pushed out by the Federal Reserve in nearly a decade. Over the past three years, hints that the Federal Reserve was considering raising interest rates had sometimes rattled markets.

Although a further rise in the short-term may be unlikely, given that many countries in Europe have reduced interest rates to below 0%, I think it’s reasonable to expect that interest rates in the U.S. cannot be maintained at less than 1% over the long-term.

Thus, investors with an interest in bank stocks in Singapore may want to pay attention to what’s happening to interest rates in the U.S. since interest rates in Singapore are likely to respond to changes in the Fed’s actions.

Generally speaking, a higher interest rate environment is good for banks, since they can receive a higher interest spread between their rates of lending and borrowing.

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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 contributor Lawrence Nga doesn’t own shares in any companies mentioned.