The performance of financial markets provides signals about the
state of the global economy. Market movements in part reflect
shifting expectations about growth, inflation and risk. The
messages from markets are fallible. But unlike economists'
forecasts, the positions investors take are backed by real
money.
So who made money in financial markets in 2016 and what does it
imply for the global economy?
It's worth recalling that 2016 opened on a wave of pessimism
about the global economy and about equities. A hard landing for the
Chinese economy was seen as the number one risk, an outcome that
could have dragged the global economy close to recession. One City
of London analyst advised clients to "sell everything except
bonds", advice that was widely repeated in the media. Clients
were told to brace for a "cataclysmic year" and a global
deflationary crisis. It was an extreme statement of a prevalent
view that 2016 would be a risky year.
