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January proved a horror start to 2016, as the market digested the December interest rate increase from the US Federal Reserve, a transitioning China, a stronger USD, and its effects on commodity prices.
In the first two weeks of January, nearly $8 trillion was wiped off global wealth. Asian markets bore the brunt of selling, as measures that the Chinese regulators put in place back in July (like trading halts and bans on short selling of stocks) expired. Investors took advantage of the window, and sold down stocks, leaving the Shanghai bourse 23% weaker.
Chinese policy makers defended the Yuan, spending $99.5b in a month to prop up the currency. This tallies up to $420b they have spent in foreign reserves over the last 6 months in buying Yuan.
Oil prices fell to new lows of around $26 a barrel. Weaker energy prices caused concern for the high yield or junk bond market which has a large exposure to energy and energy services debt.
Toward the end of the month, the ECB’s Mario “whatever it takes” Draghi hinted at further stimulus. The Bank of Japan went one better, surprising market with an interest rate cut, and joining the “NIRP” (negative interest rate policy) party.
Best asset class performance was logged by the bond market, followed by Cash.
