Dear Foolish readers, welcome to the penultimate day of 2016! 2016 has certainly been an eventful year, full of surprises and unexpected outcomes. I thought it’d be interesting to ‘wrap up’ some of the major market events that have happened during the year and present them as a present – one which contains a boxful of investing lessons. In this article, I’d be looking at four major events (in no order of merit). For the next three, you can check out here. With that, let’s get started!
1. A plunge in stock markets around the world early…
Dear Foolish readers, welcome to the penultimate day of 2016!
2016 has certainly been an eventful year, full of surprises and unexpected outcomes. I thought it’d be interesting to ‘wrap up’ some of the major market events that have happened during the year and present them as a present – one which contains a boxful of investing lessons.
In this article, I’d be looking at four major events (in no order of merit). For the next three, you can check out here. With that, let’s get started!
1. A plunge in stock markets around the world early in the year
2016 began with some big declines in stock markets around the world. From the start of the year to when they hit their lows in February, stock market indexes such as the S&P 500 in the US, the Hang Seng Index in Hong Kong, the Straits Times Index (SGX: ^STI) in Singapore, and the Nikkei 225 in Japan, all fell by 9% or more. And in fact, double-digit declines were the norm.
What caused the plunge? Many market commentators put forward their speculations, such as slower economic growth in China, the commodity market collapse, US interest rate hikes, and more. Personally, I have no clue.
But there’s still a lesson here. Markets do plunge from time to time. So, it can be useful to always be ready to pounce when there are favourable prices.
2. Oil prices falling to a multi-year low
2016 saw oil prices fall to a multi-year low.
As a result, the stock prices of many oil & gas companies around the world collapsed. In Singapore’s case, even giants such as Sembcorp Marine Ltd (SGX: S51) and Keppel Corporation Limited (SGX: BN4) – they both are some of the world’s biggest oil rig builders – saw their stock prices plunge to multi-year lows. Some oil & gas companies even failed to survive, with Swiber Holdings Limited (SGX: BGK) being a good example.
The lesson here is that investing in a commodity-related company exposes us to the commodity’s pricing risks, which is something that no company has control over. A commodity-related company does not necessarily make for a bad investment – but it’s important to keep the risks in mind.
Did anyone expect the people of the United Kingdom to vote to leave the European Union? If you did, raise your hand.
Thing is, Brexit was largely unexpected. And when it happened, stock markets around the world fell hard. For instance, Japanese stocks declined by some 8% the day after Brexit. In the US and here in Singapore, stocks slipped by 4% and 2%, respectively.
Following the vote, UK’s Prime Minister David Cameron resigned and the pound sterling fell to a record low. But where are stocks today? The Nikkei 225 is higher than where it was just before Brexit. The same goes for the S&P 500 and the Straits Times Index. In the UK, the FTSE100 index is today over 12% higher than where it was just prior to Brexit.
What’s the lesson here? Predicting stock market outcomes from political events is a fool’s (lower-case ‘f’) errand. As investors, we would be better off focusing on the businesses of the companies we’re interested in.
4. Appearance of ngegative interest rates
Have you ever heard about the concept of being paid to borrow money? From a personal-finance point of view, it would be paradise if we can go to the bank, borrow some money, and have the bank pay us interest. Thing is, this is what is happening on a country-level with the appearance of negative interest rates this year.
In July, Germany became the first country in the Eurozone to sell 10-year debt at a negative yield. What that meant was, investors were in effect, paying the German government interest when buying its bonds. This came after Japan and Switzerland sold 10-year bonds with negative yields in March and April, respectively.
Negative interest rates were thought to be impossible by economists, but then happened anyway. Lesson here? Never say never in the world of finance!
So, there you have it. Four major market events that happened in 2016 and the lessons we can learn from them. I’ve shared the link to the next three events earlier, but for convenience’s sake, here it is again.
With that, I wish you a happy 2017!
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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.