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Outlook 2017 isn't particularly encouraging

My colleague Goh Eng Yeow from Straits Times wrote an article earlier this week whose headline asked SGX where have all the investors gone. In a nutshell, the article discussed the problems currently plaguing the local stock market, the main one being the low level of daily liquidity - it quoted a broking director saying that whenever daily value is less than S$1b, the broking industry is unable to cover its fixed costs. In other words S$1b is roughly the breakeven point for dealing firms and many readers would not need reminding that volume regularly dips below this mark. Even though ST and BT are traditional inhouse competitors, I have to agree whole-heartedly with Eng Yeow, as well as with the several remisiers who I know who have thrown in towel because they think current conditions are the worst they've ever seen in the past 20 years.The problem is that try as I might, it's difficult to envisage 2017 being radically different from 2016, which when you think about it, was not much better or different than 2015.

In my view, it's hard to see any big rebound in the global economy or markets in the next 3-6 months. I'm not sure if the fundamental reason for this is that central banks have relied too heavily on pushing monetary policy to the limit - flooding the world with cheap money for several years is bound to have an adverse effect, in my view - but growth looks set to remain low, perhaps even miniscule for the local economy. I met with a high-ranking business community leader this morning, who asked me "how is it that we are not yet officially in a recession?''. How indeed. Commodity prices and earnings look set to remain depressed, many businessness are closing down and I think the emphasis today on hunting for yield will continue next year. Of course this should prompt central banks to keep interest rates as depressed as possible but I think there is mounting pressure on the Fed to normalise rates quickly. Although there is some justification for this since rates have been kept artificially low for too long I wonder what higher rates would do to consumer spending, mortgages, business loan repayments and corporate cash flows.

Then of course, there's the uncertainty of the US presidential election - if Donald Trump wins, who knows what he might do with the Fed? For example, in the first debate with Mrs Clinton he made it clear that he's not a fan of Janet Yellen which means that, if I recall rightly that the Fed chair serves at the pleasure of the president, there is a chance of Ms Yellen being replaced by a Trump appointee. I can just imagine how markets would react to such an event.

Volatility in the past week has tapered off, I think because investors are waiting to see who wins the election. Whoever does become the 45th US president though, I'd have to say that the outlook for 2017 isn't going to be much to write home about.

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