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Friday Email: 01 January 2016

Every Friday morning our lead analyst Mark Riding sends out his weekly run-down and upcoming events in the investor calendar, like this one:

That was a pretty bad year for the UK stock market as a whole and a disaster for the resources and mining sectors.

The DividendMax model portfolio outperformed the FTSE 100 and FTSE 350, although it underperformed the FTSE 250 significantly ending the year up 1.1%

The FTSE 100 ends the year down 4.9% as it fell from 6566 to 6242  The FTSE 250 fared much better and ended the year up 8.6% having risen from 16085 to 17429. The FTSE 350 ended the year down 2.5%.

The big question for 2016 is will the resource sector continue to be sold off or will it recover. The answer will lie in the supply and demand equations which will re-adjust during 2016 as more and more output is mothballed by high cost producers and the very large explorers continue to cut their exploration budgets to cope with low end prices. There is already a lot of misery priced in as we have seen really dramatic falls during the year with Rio Tinto, BHP Billiton (Lost over 50% this year and is way off its all time high of £26), BP (485 at its high in May to 353 now) , Royal Dutch and many others plummet.

With regard to dividends in 2016 in our view BHP will halve its dividend and Rio Tinto will maintain theirs, as will BP and Shell. Continued falls in oil and commodities prices during 2016 will put all dividends in these sectors at significant risk in 2017. With investment being rapidly reigned in, at some point there will be an upward correction and the supply / demand equation will result in very significant rises in input prices.

In the short term, investors have nothing to see that will persuade them to go big into these sectors and will continue to focus on the beneficiaries of the low prices, such as travel and the construction industry. We believe that at some point next year the switch will come, but more likely second half of the year.

Interest rates should remain subdued next year lending continued support to consumers along with low energy input prices, which will keep inflation under control.

We will be producing our 2016 model portfolio shortly and that will be one of the most interesting and difficult yet given the above considerations.

 

This email was originally sent on Friday 01 January 2016

The Friday email is delivered to over 20,000 subscriber’s every week, and remains a widely read run-down of recent events and what investors can expect in the week ahead written by our chief analyst Mark Riding.

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