Which asset classes performed best in 2016?
19 Dec 16
2016 has been a remarkable year. The two best performing large equity markets this year are countries that have been mired in recession for years. At the same time, the stock market of the world’s fastest growing large economy has been delivering some of the lowest returns.
Brazilian and Russian equities are involved in a close contest for the crown of 2016’s best performing equity market. Even though the economies of both countries have continued to contract throughout 2016, the Bovespa and MICEX indexes have posted gains of around 60% in euro terms year-to-date.
The recovery in commodity prices, that stood at their lowest levels since early 2009 at the start of the year, of course explains part of this bounce-back, since many of the companies listed in Russia and Brazil are commodity producers. But stock prices have recovered much faster than commodities have.
The bounce back of Russian equities has been especially pronounced in recent months. They now trade higher in euro terms than they did three years ago even though the Russian economy has shrunk in the meantime.
It therefore seems conceivable that the two markets have had their own, idiosyncratic reasons for surprising to the upside this year.
As for Russia, the prospect of a more Russia-friendly US administration, accommodative central bank policy and the global value rally have powered local equities. In Brazil, Dilma Rousseff’s impeachment over summer marked the start of a strong rally.
Although both countries are dealing with large fiscal deficits, among other pressing problems, the fact that their economic fortunes are at least looking less bad than they did a year ago seems to have been rewarded by investors.
Tags: Donald Trump | High Yield | Russia | US
