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Many investors were keen to see the back of 2016 as it had been a fairly ordinary year, but just when they had given up on earning decent returns share markets produced a strong surge into year-end.
Thanks to the election of Donald Trump as the next US President financial markets took off, believing his statements that he will boost business, cut taxes, spend big on infrastructure and cut regulation.
The best performing major economy at present is the US. The big question looking forward is what Mr Trump will deliver. That is quite unclear.
As a promoter of business-friendly policies Mr Trump is likely to provide some help to American businesses. However his plan to cut taxes and boost infrastructure spending will create bigger deficits and more debt. His own Republican Party is strongly opposed to raising the debt ceiling.
Mr Trump plans to reduce regulation. Many will say ‘good luck with that’. Dozens of politicians in many countries have tried to do that previously, with little success.
While US business may benefit from Trump policies overseas business is unlikely to. In fact it is likely to be adversely affected by his protectionist approach. There is a serious threat of global trade wars.
The Trump policy to impose tariffs on imports from China, Mexico and elsewhere would see them retaliate with tariffs on imports from the US. That would retard world trade.
Trump policy to cancel free trade agreements and adopt protectionism would be bad for global business and living standards.
In the end, investment returns for 2016 were reasonable to good. Australian shares as measured by the All Ordinaries Accumulation Index returned 11.65 per cent. Stock market listed property securities made 13.18 per cent and the Mercer Index of direct property earned 12.43 per cent.
Overseas shares as measured by the MSCI World Index returned 7.92 per cent, or 10.34 per cent if hedged to remove the effect of currency movements.
Counteracting those good returns cash and fixed interest provided predictably low results. The Bloomberg Bank Bill Index shows cash deposits averaged 2.07 per cent for the year. Australian fixed interest returned 2.92 per cent while overseas fixed interest earned 5.24 per cent.
Most investors have diversified portfolios and most default superannuation funds are ‘balanced growth’ style funds. These funds averaged 5.67 per cent return reflecting the caution of fund managers. While not great these results were much better than from money in the bank.