Monday 4 January 2016

Trading in 2016 starts off on the wrong foot as Chinese Manufacturing data disappoints

All hopes were dashed on Monday that perhaps 2016 might be a better year for emerging market following a tumultuous year led on by China's lack of demand causing concerns throughout the globe and sending resources stocks into meltdown. But the theme that has thus far dominated the financial news headlines once again took centre stage on Monday morning as Chinese manufacturing data came in well below expectations sending Asian markets into a downward spiral.

Seeing some of the world's major miners taking a share valuation hit of over 70% last year alone doesn't inspire me much and I am of the belief that we are going to need to see more evidence that whatever rot drove the panic in the first place has begun to dissipate which clearly isn't the case.

Starting the New Year with a clean slate most financial markets will definitely be looking to set the trend early enough so as to attract the real money movers as most participates fully appreciate that we have now entered into a new wave in the cyclical order of things after the Fed hiked rates in the middle of December 2015, a tactic few have said might have been taken because of the festive mood that is commonly seen at that time of year, hoping the move wouldn't create too much impact globally.

However we will see things heat up as market participants begin to allow all information to fully register and as more economic data comes to market we'll see the uncertainty once again set in. I think a good strategy this year will be to look for strong defensive stocks with a large exposure in developed economies particularly the US, anything else you're hoping for a miracle.

The plunge in the oil price and oversupply was another major story that made a lot of waves throughout financial markets in 2015 and as we've seen today there is still a good amount of interest involved with this latest news that Saudi Arabia's embassy in the Iranian capital of Tehran coming under attack after the execution of a Shiite cleric sent speculators into overdrive if this could be the bottom of the oil price.

Both countries are members of OPEC with Saudi leading the collusive oil body which found itself in a very compromising position late last year when it held its last bi-annual meeting in Vienna which concluded with no clear direction to the production cuts the market was looking for leaving little doubt in many minds that Saudi wished to see a further drop in oil prices.

But with increasing tensions between the two oil producing nations, speculation will grow stronger as to how much production could be forced to stop due to military or civil intervention placing wells at risk. The story seems to be developing so I wouldn't expect to see an immediate 10-15% spike in price but if there is indeed some sort of retaliation we bound to see volatility pick up. Watch this space.
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