Leader: Brace yourself for more volatility


Investors got an abrupt new year wake-up from markets this year. As the sound of Auld Lang Syne was still dying away markets returned with a bump and so ensued the worst start to the year for many indices for decades, and for some markets their worst start ever.

China was blamed for much of the volatility, with its ‘circuit breakers’ exacerbating the market volatility and sealing in falls in the markets each day. But even after the Chinese government held up their hands to the failed plan and scrapped the circuit breakers, volatility persisted.

China is not the only cause. The falling oil price has continued to rock markets, while the after-effects of the Federal Reserve raising interest rates in December were also felt.

The oil price falls have been the cause of many headlines and much commentary, but a large number of fund managers I speak to are more relaxed about the fall than it would appear from the headlines. Falling oil prices are good for most people and a large number of countries. Many see it as an effective tax break for the consumer, and so are pointing to the opportunities for gains in consumer-facing companies and service industries.

While some of that money has been slow to be seen, many in the investment world are convinced that the average person on the street will wake-up to the additional money in their pockets, and promptly spend it this year. Beth Brearley looks at the multitude of effects of the oil price nosedive.

Closer to home another concern currently worrying managers and investors alike is the outlook for dividends. Oil prices have a part to play here, with the plummeting price hitting usually solid dividends payers such as Shell and BP. With earnings failing to keep up with dividends and many companies having to use cash to make the payouts, cuts seem inevitable. Our investment committee looks at the issue this month.

Most seem to think the first month of this year has set the path for the rest of 2016, and volatility will be here to stay. With a US election, a vote on Brexit, a hotly-anticipated budget and constant attention on when the Bank of England will raise rates to name a few major events cropping up this year, one thing is for sure, the markets are certainly not shaping up for a boring year.