As 2016 gets underway, investors find themselves filled with anticipation and nervousness. With the stock market off to a rocky start due to the Chinese economic woes, it’s possible for investors to wonder what if anything they should be doing based on the market’s current state. However, as those who know the market well can attest, it’s always filled with opportunities and potential pitfalls.
One of the biggest challenges for investors in 2016 will be the ability to find undervalued companies that are stable enough to withstand whatever comes their way during the year. While many sectors such as technology and industrial materials may be in for a tough year, others such as those in the financial and energy sectors still find themselves interesting to investors in terms of valuation. Specifically, life insurance and trust banks, along with oil exploration and production companies, appear to still be undervalued, even after the market’s correction near the end of 2015.
Overall, investors who have a long-range horizon with their investment plans appear to be in the best position for 2016. Short-term volatility will be present for the first half of the year, with many investors nervously looking to see how the Chinese economic woes continue to affect the U.S. economy. In addition to this, the interest rate policy of the Federal Reserve will also have an impact on the plans of many investors, with clarity appearing to come too slow for the tastes of many investors.
Along with these possibilities, there are many other factors that could affect investment opportunities for better or worse. One of the biggest concerns involves growing geopolitical tensions, with the Syrian refugee crisis beginning to result in straining the European Union. Also, the U.S. credit cycle appears to be nearing its end, which could signal a rise in return dispersion and default risks. Central bank liquidity appears to have crested, allowing for monetary policies worldwide to have greater flexibility and increased momentum in 2016. Finally, the U.S. dollar appears set to have more gains in 2016, with European and Japanese equities finding themselves in favor with many investors.
With these and other factors coming together in 2016, the pitfalls and opportunities for investors appear to be numerous. Yet despite the flux of activity that may make investors nervous early in the year, it’s believed by year’s end investors may find themselves staring at large gains and profits.
David Milberg is an investment banker from NYC.