In a year replete with extraordinary political upheaval and the wrenching loss of artistic icons, the markets have played their part in contributing to the angst. Here is a look at some of 2016’s most notable one-day wobbles.
It started badly. In China, the mainland’s benchmark, the Shanghai Composite index, had closed 2015 near a four-month high after bouncing nearly 21 per cent from its August trough.
That year had been turbulent. What many considered a stock market bubble started deflating in the summer, leaving the SCi down 43 per cent in just a couple of months. Beijing intervened to try and stem the bloodletting, and introduced some circuit breakers — in place for January 1, 2016 — in an attempt to damp future volatility.
Doubtless the authorities would have been disappointed to see investors immediately taking their shiny new market tools for a spin.
On January 4, the first trading day of the year, the SCi plunged 6.9 per cent, triggering the breakers and leaving desks to twiddle their thumbs for the rest of the session as dealing was halted. The more tech-heavy Shenzhen Composite closed down 8.2 per cent, its worst one-day drop since 2007.
The cause of the new year slump remains unclear. Perhaps it was just a hangover from the previous year’s volatility. But there is no denying it triggered aggressive selling of equities from London to New York, and by the end of January, the SCi was down 23 per cent, setting the trend for another choppy 12 months across global stock markets.
The Trump bungee
When Carl Icahn, billionaire investor and adviser to Donald Trump, saw the plunge in US equity futures in response to the Republican’s capture of the White House, he left the president-elect’s victory party early so he could place a $1bn bet on stocks. His only regret, Mr Icahn told CNBC several weeks later, is that he did not buy more.
We do not know Mr Icahn’s exact timing. At one point after it became clear Mr Trump would win the electoral college vote, the futures market was indicating an 800 point drop for the Dow Jones Industrial Average. Trading in S&P 500 futures were halted after they plunged 5 per cent.
Many investors would not have followed Mr Icahn. For weeks most analysts had been predicting at least a 10 per cent pull back for the stock market on worries that Mr Trump’s mercantilist pledges would spark trade wars and hurt the economy.
However, Mr Icahn exemplified those who saw opportunity; where Mr Trump would prove nowhere near as confrontational with trading partners, his policies would boost growth and his lighter regulatory touch would help sectors such as banking and healthcare.
By the time Wall Street closed on November 9, that reasoning had won the day. The S&P 500 finished up 1.1 per cent, the start of a remarkable rally that has propelled it to a series of subsequent record highs.
Sharp currency moves are not especially unusual. The Mexican peso tumbled on Donald Trump’s election victory. The Turkish lira has endured several sessions of Ankara-induced angst on its way to a record low. Still, it is pretty rare for one of the world’s major forex units to behave like that of a banana republic. In 2016 sterling managed it. Twice.
As the first inklings emerged in the early hours of June 24 that the UK had voted to leave the EU, the pummelling of the pound began just hours after it had topped $1.50 to the dollar. By the time Brexit was confirmed, sterling had hit an intraday 31-year low of $1.3224, a fall of 11.1 per cent that reflected investors’ fears over the UK’s coming divorce from the EU trading block.
As the dust settled, the pound meandered for three months in a range between roughly $1.28 and $1.33 as traders attempted to assess what form Brexit might take. Then came October 7 and the pound’s flash crash.
It was around the time — near midnight in London and breakfast in Hong Kong — the FT published a story saying French president François Hollande was taking a tough stance on Brexit, that the pound began to fall. With dealing rooms thinly manned, the slide accelerated, triggering stop loss orders that exacerbated the move.
It is alleged a forex trader at Citi “panicked”, firing further sell orders into the system and causing sterling to drop from $1.26 to a little over $1.18 in just two minutes. (There is a dispute about how far the pound plunged. Some trading systems recorded a low of $1.14.)
By the time London-based traders reached their desks, the pound was back around $1.24. The recovery in sterling’s reputation may not be so swift.
This was the year when equities seemed particularly vulnerable to regulatory smackdown. From the EU outing global tax minimisers, to torture by Tweet. The latter included the battering afforded pharma groups following Hillary Clinton’s continued highlighting of “price gouging” and a Donald Trump complaint (dubbed an Orange Swan Event) about government procurement costs. Also, casino stocks recently took a hit on worries China was clamping down further on gambling to contain capital flight.
However, a different kind of gambling venue suffered one of the most savage shellackings. On December 6, UK-listed spread betting groups CMC and IG Group slumped 37.6 per cent and 38.4 per cent respectively, after the regulator said it was looking at restricting customer access to some products.
Highly leveraged contracts for differences and binary bets, where a punter can lose a stake in minutes, are under the regulator’s gaze. Losing revenue from these money spinners is a blow, but the sight of the companies’ share prices failing to rally meaningfully suggests some investors are worried that the harsher regulatory regime now presents an existential threat to the sector.