2016 has been quite a year so far and we still have six months to go. It seems like an eternity has passed since the warnings of a possible Asian crisis driven by fear of Chinese currency devaluation during the start of the year. At the time of writing, gold leads the asset price returns year to date and with good reason. With Geo-politics taking the main lead, like the fourth coming US elections and the recent terrorist attacks in Europe and the Middle East. However, the overwhelming event of the year, and possibly many years for global investors was the surprise outcome of the Brexit vote, in which Britain, once having an empire covering a quarter of the earth, decided to free itself from foreign control and vote to leave the European Union. Despite initial declines, markets have shrugged this off and have posted new highs for the year. Going forward we believe that one of the consequences of Brexit will be a robust reflationary policy response from the major Central banks and governments. This should ensure world-wide interest rates remain low and be a possible catalyst to drive real estate and gold prices much further. From a fundamental perspective, Brexit has led to only modest downward revisions outside the UK and Eurozone, but it has added to downside risks. Despite better data recently, US growth is expected to remain modest and China should continue to slow gradually, the net-effect is that world economy continues to improve. So, while this does not seem a time to hold a large exposure of an investor's portfolio in stocks, investors who have significant un-invested cash could consider buying. We expect the US dollar to continue to strengthen from a divergent monetary policy and a rebound in economic data. This should also to a certain extent, benefit EM stocks. Sterling still has large downside risks attached and we expect the bank of England to cut interest rates in August. Regionally, markets continue to be driven by sentiment on oil prices and we keep an eye on the current earning seasons to see signs of how corporates are dealing with the softened economic environment. We remain with a constructive view on the Middle East markets and believe investors should focus in defensive sectors that stand to be less sensitive to commodities price fluctuations. In the Kingdom, we are seeing the market regulator speeding up the regulatory reform that would yield an expedited path towards global emerging markets indexes inclusions. We expect this to provide a significant momentum catalyst for the market in the next twelve months together with the expanding pipeline of IPOs that will change the composition of the Saudi market. As we progress into the second half of 2016, investors will be eyeing developments over China's economic stability, the ongoing Brexit negotiations, and the U.S. Presidential elections in November. This provides possible triggers for volatility along the way. But looking through the near term and over the longer time horizon, global stock markets seem to trade around their fair value, with plenty of opportunities still remaining in Income assets and real estate (ex-UK). Hence, in the current market environment, there is room to form a balanced and well-diversified investment portfolio. * The writer is Managing Director, Head of Advisory, SEDCO Capital
