Global Market Forecast for 2016 Based On A Predictive Algorithm

reuben 2Reuben Bor is a Financial Analyst Intern at I Know First


Global Market Forecast for 2016

  • 11378-illustration-of-a-globe-with-borders-pvIn 2015, our strongest signal for a bullish outlook on the Italian index yielded strong returns as did our bearish projections for the Australian index
  • Shanghai Composite Index performed quite well despite market correction
  • In 2016, we recommend investing in Ireland and avoiding Russia and Malaysia

In this article, we will review the outcomes of our 2015 predictions, and we will reveal our projections for 2016. Overall, 2016 is not expected to be a year of particularly high yields, however, economists at the IMF believe that 2016 will be stronger than 2015, with a projected world GDP growth of 3.6%, compared to 2015’s 3.1%.

Global Market Forecast for 2016

(Source: International Monetary Fund 2016 World Economic Outlook)

2015 Outcomes:

In our January 2015 Global Market Forecast, we predicted low volatility and growth in the US markets and extremely high volatility in the Russian markets. On our January 1st, 2015 index markets forecast, looking at predictions with signal strengths above 15, we were bullish on the-the FTSEMIB.MI, the benchmark for the Italian stock market.  From January 1st, 2015 until December 17th (time of writing) we saw that Italian index rose by 11.56%. We were bearish on ^AORD, the index for the Australian stock index. Since January 1st, this index has fallen 5.75%. We were also bearish on SSE_COMP, the Shanghai Index, which has actually risen by 19.69%, despite a major market correction. Furthermore, we were bearish on ^TR20, the Dow Jones Turkish Index, which has fallen by 32.29%. Finally, We were bearish on ^MXX, the Mexican index, which has gained 0.66%.

Global Market Forecast for 2016

(Table 2 details IKF World Indices Forecast from January 1st, 2015 )

Explanation about how to read the forecast is further elaborated here.

2016 Predictions:

Our most current algorithmic prediction (December 20th, 2015) indicates that in 2016 Ireland and Japan will be the most attractive economies to invest in and that investors should avoid Malaysia and Russia.

After almost near bankruptcy in 2009, Ireland has been experiencing a vast economic recovery. Irish stocks have hit a 9-year high this year and are expected to continue growing. The government expects a GDP growth of 6%, making it the fastest growing economy in the Eurozone. Ireland has been able to reduce its national debt by 25% since 2013. 15-year Irish bonds recently sold at a record low of 1.8%, indicating that the market agrees with a low-risk assessment of Ireland’s ability to recover economically. Furthermore, a weak euro has stimulated exports in Ireland.

Global Market Forecast for 2016


Japan experienced its first economic contraction since the financial crisis this year, however, the IMF believes they are on the path to steady growth, as they expect GDP growth to increase from 0.6% in 2015 to 1.0% in 2016. According to the Morgan Stanley 2016 Strategy outlook, Japan rate volatility is the cheapest of all regions, and they “expect fiscal measures and reforms to boost growth.” Japan is expected to have continued policies of easing, which should support growth. Finally, the Japanese Yen, which has depreciated by 35 percent since 2012, should improve Japanese exports.

Russia is expected to remain in recession according to both the International Monetary Fund  and the European Bank for Reconstruction and Development. The main constraints to Russian growth include sanctions resulting from Vladimir Putin’s foreign policy, and Russia’s dependence on oil exports, a market where prices are expected to remain low. The IMF projects the Russian economy to continue to contract further from the 3.8% decline this year.

Global Market Forecast for 2016

(Source: International Monetary Fund 2016 World Economic Outlook)

Malaysia, being among the only major oil exporters in hit hard by the fall in commodity price, however, other political factors support our prediction to stay away from Malaysia. The IMF projects the Malaysian GDP to drop from 4.7 in 2015 to 4.5 in 2016. The Malaysian Ringgit has reached decade lows, which is particularly problematic due to the large levels US dollar debt. There are large concerns regarding consumer spending, as a result of a recently implemented 6% goods and services tax. Furthermore, there are worries about government corruption due to a major scandal involving Prime Minister Najib Razak.

Global Market Forecast for 2016

I Know First is a financial services firm that utilize an advanced self-learning algorithm to analyze, model and predict the stock market. The algorithm predicts the flow of money in almost 2000 markets across a range of time frames (e.g., 3-day, 1-month, 1-year). The algorithm’s predictability becomes stronger in the 1-month, 3-month, and 1-year horizons, so it is particularly useful as a long investment tool, albeit that it can also be used for intraday trading.

Algorithmic Analysis

The signal represents the predicted movement direction or trend and is not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price. The signal can have a positive (predicted increase) or negative (predicted decline) sign. The heat map is arranged according to the signal strength with strongest up signals at the top while down signals are at the bottom. The table colors are indicative of the signal. Green corresponds to the positive signal and red indicates a negative signal. A deeper color means a stronger signal and a lighter color equals a weaker signal.

The predictability indicator measures the importance of the signal. The predictability is the historical correlation between the prediction and the actual market movement for that particular asset, which is recalculated daily. Theoretically, the predictability ranges from minus one to plus one. The higher this number is the more predictable the particular asset is. If you compare predictability for different time ranges, you’ll find that the longer time ranges have higher predictability. This means that longer-range signals are more important and tend to be more accurate.