Equity markets

2016 was a volatile year for equities. Most of the world’s stock exchanges ended the year higher, but the road was bumpy. The ECB’s highly accommodative monetary policy led to a negative yield on 10-year German government bonds. As a result, high-quality growth stocks with attractive dividends reached great heights. Financials were out of favour. After the Brexit referendum and Trump’s election as the next US president, this trend reversed and cyclical stocks were the strongest performers. The outcome of the Italian referendum had already been fully discounted by the markets. However, this does not make the problems of the Italian banking sector any less acute going forward.

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Regional equity returns in EUR

 

Worldwide sector returns in EUR

 

 

 

 

 

Region

%

 

Sector

%

 

 

 

 

 

North-America

14.9

 

Energy

30.4

Emerging markets

14.5

 

Materials

26.2

Pacific excl. Japan

11.1

 

Industrials

16.3

World

10.7

 

Financials

15.9

Japan

5.4

 

Information Technology

14.8

Eurozone

4.4

 

Utilities

9.2

Europe

2.6

 

Telecom

8.9

 

 

Consumer Discretionary

6.3

 

 

Consumer Staples

4.7

 

 

Healthcare

-4.0

 

 

 

 

In the US macro-economic indicators improved during the year and inflation picked up as well. Following the election of Trump, investors staked everything on the so-called reflation trade. Financials and energy stocks were particularly strong performers.

In 2016 many emerging markets were winners. The absolute outperformer was Brazil. Emerging markets are highly dependent on commodities, which rose sharply after reaching a low point in February. Market developments in China were highly diverse. The local markets were weak because they were still suffering from the after-effects of the collapse of the equity bubble, while Chinese stocks listed in the US (mainly technology stocks) ended the year higher. In Japan the Nikkei Index rose 9.5%, measured in euros. This rise appears to have been driven partly by the role of the Japanese central bank, which is a top-10 shareholder in 90% of the Nikkei companies.

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