Global capital markets experienced their slowest start to the year in over a decade in 2016, as the World Federation of Exchanges (WFE) reported that value traded in cash equity markets declined by 24% in H1’2016. However, pre-election volatility gave way to post-election enthusiasm as advanced economies saw their capital markets rally in anticipation of stronger growth in the US buoyed by tax reforms and expansionary fiscal policies proposed by the Trump transition team. By Q4’16, advanced capital markets had picked up significant momentum, with major indexes such as the Dow Jones Industrial Average Index reaching record highs. Amid signs of a US recovery, the US Federal Reserve (the Fed) raised rates by 0.25% in its final meeting of the year.
However, there was a contra-impact in Emerging and Developing Markets, as global investors shifted capital flows back to advanced economies in search of low price and low risk assets with increasing yields. According to the Wall Street Journal, “Global investors’ appetite for emerging-market stocks and bonds slumped to its lowest level since the global financial crisis last year (2016), with the biggest hit to inflows coming after Donald Trump’s victory in the U.S. presidential election”. Accordingly, “foreign investors sent just $28 billion into emerging markets in 2016…90% lower than the average from 2010 to 2014”.