If 2016 is any indication, then the world is becoming a lot less predictable. From the shock of Britain’s European Union referendum to the rise of US president-elect Donald Trump, markets were repeatedly caught looking in the wrong direction throughout the year.
When it comes to the capital markets, efforts to predict the future are often a fool’s errand. Those who relied on opinion polls, prediction websites and other, supposedly scientific, measures ahead of key events in 2016 got that message loud and clear.
It wasn’t just in the UK and US where politics confounded expectations. A hard-nosed outsider named Rodrigo Duterte took power in the Philippines and promptly set about insulting world leaders. South Korea’s president faced impeachment proceedings over a corruption scandal. India’s prime minister took almost 90% of the country’s banknotes out of circulation.
Financial markets sprang plenty of surprises, too. The yen refused to weaken for most of the year, despite the Bank of Japan’s move into negative interest rates. US equities hit record highs after the election of an unpredictable political novice as president. Coal prices at one point were up 100%.
For the most part, Asia could afford to ignore global shocks. China’s economy, in fact, did not collapse, even though bearish global investors thought they were onto something at the start of the year. South-East Asia plodded along at its own ponderous pace, Singapore managed to contain the fallout from a series of defaults, and even Korea’s political crisis failed to dent dealmaking.
Asian capital took on greater significance in 2016 as international investors coped with distractions closer to home. Chinese outflows, in particular, dominated every asset class as mainland buyers looked for an alternative to a declining renminbi and companies stepped up their search for global growth. But even that source of funding was thrown into doubt late in the year amid a renewed clampdown on capital flight.
The lesson, if there is one, is not to take anything for granted. The past year has underlined the dangers of relying too heavily on one source of capital, or one source of underwriting income.
While predictions are clearly a dangerous endeavour, it seems clear that 2017 will bring with it even more uncertainty. With Donald Trump in the White House, and the European Union on ever shakier foundations, Asia is going to need to look after itself.
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