Brace for even greater market volatility in 2016, analysts warn

Investors will be jittery as rates rise.

Local equities had witnessed wild swings in 2015, and analysts at OCBC warn that market volatility is likely to spill over to the upcoming year.

“Volatility for the STI (based on the 10-day indicator) hit a recent high at 31.6 in Sep 2015, the last time it crossed the 30 level was in Oct 2011 during the European debt crisis. With the hazy outlook and impending higher rates, we expect the market to stay volatile,” said the report.

The Chinese stock market rout in July and August and the drop in commodity prices were among the main drivers of volatility in 2015, the report noted.

“Heading into 2016, we expect these factors to remain as economic growth projections had been cut and this flowed down to impact corporate earnings. US equities’ valuations have also become more expensive and a higher interest rates could mean higher financing charges for corporates and also impact property and mortgages,” said the report.

Despite persistent risks, OCBC noted that impending rate hikes may not necessarily spell trouble for equities.

“Higher interest rates may not necessarily be negative for equities as funds could move out of bonds, properties or other high yield assets and could rotate into equities,” said the report.