Guessing game for investors in year ahead

It is a thankless task that often leaves egg on the face. I wonder how many market​ ​followers this time last year were predicting an oil price below $30 a barrel or could anyone​ ​imagine ten years ago that UK interest rates would be so low for so long?

Whilst the first two​ ​weeks trading on markets after Christmas have been tumultuous, this does not necessarily set out​ ​how the year as a whole will fare and it is always worth remembering the old adage that ​i​t is​ ​always darkest before dawn.

There are certain themes that investors could do with paying attention to in 2016. Our analysts were charged with identifying the key trends and themes for their sectors. Whilst any of these could prove wide of the mark, it is perhaps a more useful​ ​task than making specific predictions.

Natural Resources​:​ Lower commodity prices combined with reduced demand, particularly from China, and developing​ ​metal surpluses helped depress share prices last year. The larger cap companies have not​ ​escaped the general malaise either with a real threat to dividends and over​ ​­indebted balance​ ​sheets. Nonetheless, there remains a requirement over the medium​ ​­term for more​ ​production across a range of metals and industrial minerals and for an orderly market there needs​ ​to be capital investment at the correct time. ​Those companies with strong balance​ ​sheets and able to retain their dividend payouts will emerge stronger when the cycle turns.

Oil & Gas​: ​Whilst the near term outlook for the oil price continues to be negative with the risk of more​ ​production from Iran, we are expecting market balance to return near the end of 2016 from the​ ​current situation of oversupply. By way of background, OPEC announced in November 2014 that​ ​it would not defend the price of crude oil and its members are actually now producing 1.3 million​ ​barrels per day more than in 2014. The market is therefore adapting to the one­ off effect of this​ ​production increase at a time when demand is being affected by a slowdown in China. As a result​ ​of this savage backdrop, we expect investors to be increasingly less tolerant of failure in the​ ​sector, where hitherto losses have been an accepted part of a risky business. We also see a​ ​cluster of survivors that stand to thrive in the current chaos and excel once the crude oil market​ ​stabilises. ​There is good reason to expect price recovery towards the​ ​end of 2016. Adopt a safety first approach​ -​ there will be casualties.

Consumer​:​ 2015 provided a solid economic backdrop for the consumer - increasing employment,​ ​low interest rates, minimal inflation and positive wage growth leading to an overall increase in​ ​disposable incomes.

Against this positive backdrop, structural changes impacted the sector with discounters and online​ ​players continuing to disrupt established operators. Looking ahead to 2016, the offline to online​ ​shift in ​r​etail will continue to benefit pure online only players as well as traditional operators​ ​who hold a strong online presence. Luxury consumer goods brands will need to cope​ ​with fluctuating demand in countries such as China. In the UK, the introduction of the National​ ​Living Wage is a double edge sword – increasing staff costs for most businesses but those​ ​operating at the value end of the market benefiting from their customers having greater spending​ ​power. ​Value, multi­channel and online ​will ​continue to outperform, ​but it’s a ​less certain outlook​ ​for luxury brands such as Mulberry and Burberry.

Cybersecurity was a key theme in 2015 and the coming year will only see this reinforced as more​ ​and more devices – from televisions and central heating to common kitchen appliances such as​ ​fridges and microwave ovens – join the connected world. Whilst such sophistication undoubtedly​ ​helps streamline modern living, it does expose vulnerabilities that can be exploited by the​ ​unscrupulous and criminal organisations. This explosion in connected devices (all of which are in​ ​principle capable of being hacked) is supporting a huge and growing market – an estimated​ ​$106bn was spent worldwide on cybersecurity in 2015 but, by 2020, this is forecast to grow to $170bn.