2016 Global Market Outlook by Liaquat Mian

2015 is coming to a close and it’s time to reflect on the year that’s passed and look to 2016. As a real estate developer, property manager, financial analyst, and wealth manager I take great pride in being adept at reading market trends and developing strategies to predict future movements.

Economies on the Move

The most important impact on the global markets is the G8 economies.

The US Powerhouse

Let’s turn our attention to the US market first, as it is a bright spot in the world that many markets are turning to in order to emulate their comeback. First expect the Federal Reserve to increase interest rates in the first quarter of 2016. Since this rate has remained unchanged for 7 years, the Fed is looking to essentially relay to the world that ‘hey, look at us, our economy is on the right track’.

Yet, do not expect a huge rate increase. As the rate is only 0.25%, even a 10 basis point jump is a 40% increase in the rate. Yet with employment numbers increasing and the economy rebuilding it is a symbolic sign that the world’s largest economy is back on top.

Dow Jones prediction: 1^st Quarter Peak of 20,000

Canada experiences the Good and the Bad

Ontario and British Columbia are the net winners of the new global currency realizations. Although the slide in the Canadian currency has seen slow manufacturing growth to date, you can expect this sector of the economy to pick up through 2016. These two provinces are the traditional manufacturing powerhouses and they can expect the biggest growth in manufacturing. Part of this growth will be boosted by foreign investments that see Canada as a bedrock of stability compared to most international markets. With the EU countries still trying to climb out of their recessions, Canada and its trading partnership with the US is a bright spot for investors. Unemployment will stabilize in these provinces, but employment growth will still be a slight increase.

Unfortunately for Alberta, Calgary specifically and Saskatchewan and other provinces that have started to rely on oil revenue the news is bad. With oil prices stuck in the lower end of their trading range for the previous two decades and not likely that they will climb out any time soon, these provinces are in for revenue losses. This is already being seen in the Alberta oil patch with massive layoffs. These layoffs will continue to ripple outward affecting their economies at large as these citizens cannot contribute to the public purse.

Under the new Prime Minister with large deficit spending on infrastructure, the economy will grow in 2016 and benefit as the spin off stimulus of this spending is felt nationwide. Canada can expect a continued stream of wealthy newcomers from instable regions of the world, bringing their wealth with them. These two factors together will provide a spending stimulus to keep the Canadian economy in positive territory through 2016.

The European Union

The unfortunate stage of Europe was set in 2008-09 when the EU did not do enough to boost and stimulate their economies as the US had done. The stimulus packages now under distribution will need to further manifest in their economies, which will not see dramatic results for 2-3 years’ time. The EU will need to continue to establish Euro currency liquidity, establish calming market tactics, employ aggressive asset purchasing and print more currency. The union will also continue to cap the bond market in order to prop up Greece. Growth will be modest and most likely under 2%.

Other Countries of Note

China’s GDP has dropped below double digit growth since the 2008 global recession, but do not expect it to return to that growth. The new normal in China will be high single digit growth and will remain in the 7% to 7.5% range over the next two years.

Brazil, Russia, India and other South American countries are in for trouble over the next two to three years. Instability in their economies will lead to labour shortages and growing instability. Their currencies will devalue, as their commodity based economies linked to China’s exports feels the effects of China’s GDP continued decreased rate.

Commodity specifics

Oil prices will continue to trade in the range of $35-$45 USD, and may see a peak of $50 in the first quarter of 2016, but generally will not trade beyond that. Oil has become cheap for a number of reasons. The largest is that OPEC has not curtailed production in light of the production boom of the last ten years and refuses to do so.

These Middle Eastern countries of OPEC rely on oil to provide revenue for budgets, public spending and their own projects. The fact that the US has undergone its own oil boom is of no consequence to them. Previously, small international incidents would raise oil prices on fears of instability, yet because of oil production coming from Russia, Canada, the US and the Middle East, these fears are not realized. This can be seen with the crisis in Syria, which has not effected to the global cost of oil, in fact it continues to fall.

However, this fall in oil prices is not all negative. Look to invest in related industries that have been able to sink development and research dollars into projects because of the low cost of oil. Poorer countries that export oil also benefit as they get to focus on education and health care.

World Currencies

Expect the US greenback to dominate in 2016 globally as its economy continues to recover and grow. As a result of the continued stimulus in the EU, the Euro will continue to lag behind the USD ranging from €1.05-1.10 to the USD.

Australia and New Zealand are in a unique position as they are more dependent on the Chinese economy and due to the lower GDP their currencies may drop further and hover around 70 cents USD for Australia and 60 cents USD for New Zealand.

Canada’s currency will stabilize and remain in the 70 to 75 cent USD range, as the manufacturing sector, the infrastructure stimulus, US trade and foreign investment moderates the effects of decreased oil pricing and a slowing, but still growing housing sector.

Real Estate Developments

There will continue to be pockets of real estate growth throughout the US and Canada to meet the needs of investors and housing growth of these two nations. Even a slight increase in the US’s interest rate will not affect the real estate growth in that country.

In Canada, the new down payment requirement for homes over $500,000 increasing to 10% on the home value over that amount may slightly slow down the Toronto and Vancouver housing market’s growth rate; however with the rise in foreign investment and wealthy immigrants these markets will still grow. Alberta and Saskatchewan’s housing market should expect a further small correction due to the lower employment numbers.

Predictions:

1. The Bank of Canada will lower interest rates again, possibly as low as 0% in the first quarter of 2016.
2. The US Federal Reserve will raise interest Rates in Q1 2016.
3. Dow Jones prediction: 1^st Quarter Peak of 20,000
4. China’s GDP will stay in high single digits range.
5. EU GDP growth will stay under 2% for the next 2 years.
6. Real Estate will continue to grow in Canada, although at a slower rate.

Wishing you all the best for 2016,

Liaquat Mian

Boilerplate

Liaquat Mian incorporated LJM Developments in 2001 and serves as the company’s President. Mr. Mian brings a wealth of experience in financing and project management, and is a Chartered Accountant by profession. Mr. Mian also completed Executive training at Massachusetts Institute of Technology and the University of Texas in Project Management. 

Prior to LJM, Mr. Mian served as CFO of a Fertilizer Conglomerate (FFC) in Pakistan for 25 years. In his time at FFC, Mr. Mian greatly expanded the company’s business through two major infrastructure projects in excess of $1 billion USD. Mr. Mian engaged in successful negotiations for financing with several international organizations including the World Bank, US EXIM, CDC (UK), EDC (Canada), KFW (Germany), PKIC (Kuwait), Dainda (Denmark), ADB, and major US banks.

Since LJM’s inception, Mr. Mian has led a series of successful commercial and residential developments across the Greater Toronto Area. He brings a wealth of experience in fund-raising, construction management, financial structuring, and real-estate advisory. For more information please visit: www.ljm.ca

Legal Disclaimer

The opinions stated in this blog are those solely of Mr. Liaquat Mian, and do not represent stock or real-estate investment advice and may not represent LJM Developments. Please seek independent qualified financial advice from a licensed financial services provider making any investment advice. Investors should also seek professional advice regarding risks associated with investments in financial markets and real-estate.  This post and message is not an endorsement of any predictions or opinions made by Mr. Liaquat Mian.