Monday 4 January 2016
New Year, New Crisis
In December, Fund Managers and Hedge funds load up on stock with their spare cash, this drives up equity market and helkps them to hit their targets for their bonus's for the year; hence the term, Santa Rally.
At the end of 2015, this was more muted, as world events meant that shocks aplenty abound and even manager desperate for bonus' don't want to be loaded with stocks that fall in value.
The flip side fo Santa rally is that Fund managers sell in the first week of January ever year, book some losses and then take on cash which they can play with for a whole year - the losses they have some time to make up and their all important bonus' are paid in Feb on last years results.
However, could it be different this year? The markets are very wobbly in China, where a real terms recession is underway in many industries while the property market bubbles away agin, and also macro problems in the Middle East (as per the whole of recorded human history, 'tis true) are not going away. Hence a rather sharp 2.5% sell off on the FTSE this morning.
That is much more of a crash than usual and sets the index up for a tough year already, off the back of what was a losing year last year. With US interest rates rising and weakness continuing in commodity markets, there will be a lot of downside risk on the FTSE in the first quarter at least.
It is not a very happy share buying environment unless you want to try high risk pharma companies that seem to have replaced E&P oil companies as the high risk, high reward AIM bets.
It will be an interesting year.