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After A Year Of Ups And Downs, World Markets End 2016 In The Black

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Despite bearing witness to the rise of anti-establishment populism that resulted in political uncertainties swaying over commodities and markets, the year has ended in a rather profitable condition for the global markets with stocks surging in the last trading day

Most world stock markets are set to finish 2016 in positive territory despite shock votes in Britain and the United States, but 2017 is clouded by looming European elections and Brexit.

London's FTSE 100 has gained almost 14 percent over the year, while Frankfurt's DAX 30 added about 6.4 percent and the Paris CAC 40 won 4.1 percent. All three indices dipped Friday on the final trading day of 2016, with London due to close at 1230 GMT.

This year witnessed a wave of anti-establishment populism, which saw Britain vote for its EU exit and the United States elect maverick billionaire businessman Donald Trump as president. Both unexpected outcomes sparked a brief tumble on global equity markets - but many have since staged a stunning recovery to finish 2016 in the black. Britons voted on June 23 to exit the European Union, sparking markets chaos and sending the pound collapsing against the euro and dollar.

FTSE sparkles

However, London's FTSE has since soared to end the year in record-breaking form, as the British economy shrugged off the impact of impending Brexit. Prime Minister Theresa May has vowed to trigger the two-year EU exit process by the end of next March.

"Fears of an imminent U.K. recession following Brexit proved wide of the mark thanks largely to the resilience of consumer spending," NFS Macro analyst Nick Stamenkovic told AFP. "Indeed, Brexit was viewed as a local rather than global issue, prompting a sharp turnaround in the fortunes of world stock markets."

Markets also briefly tanked on November 9 after Republican Trump defeated Democrat market favorite Hillary Clinton to capture the White House. Yet Wall Street has since enjoyed a blockbuster run with the Dow Jones Industrial Average now on the cusp of 20,000 points. New York has been boosted by expectations that Trump - who will be inaugurated on Jan. 20 - will honor election pledges to ramp up infrastructure spending, cut taxes and boost businesses.

"Rising optimism over possible tax reforms, increased infrastructure spending and reduced regulation have provided a spur for Wall Street - but there is a risk of disappointment once Trump becomes president in January 2017," cautioned Stamenkovic.

The advent of Brexit and Trump has now thrown the spotlight onto upcoming European elections. The Netherlands heads to the polls in March, followed by France in May, and Germany in the autumn.

Rise of populism

"Populism is the rising mood of the moment," London Capital Group analyst Ipek Ozkardeskaya told AFP. "Not only in the UK, but across Europe and the world. "Brexit will remain on the headlines in 2017, yet of course as the picture will get clearer, investors and markets will find it easier to take a direction."

There are fears that the current wave of populism in Europe could provide a boost to far-right leader Marine Le Pen in France. "Change is afoot within politics [with] voters prepared to dare try something different, tired of the status quo," noted Accendo Markets analyst Mike van Dulken. "Fears of the end of the world - from a Chinese hard landing, Brexit and Trump - have failed to materialize."

German Chancellor Angela Merkel is however widely expected to win polls set for September. "In 2017, the main focus will be elections in France and Germany," added VTB Capital analyst Neil MacKinnon. "Voters are likely to reject further fiscal austerity and push back against further super-state integration," he predicted. He added that Europe's equity markets were also lifted this year by the European Central Bank.

The ECB embarked on an unprecedented stimulus program to drive up lending and inflation in the euro area. MacKinnon also highlighted the region's banking problem after the ECB called for Italian lender Monte dei Paschi di Siena (BMPS) to receive a bailout of 8.8 billion euros ($9.2 billion). "The longer term challenge of bank recapitalization and restructuring in the eurozone area persists," he warned.

In foreign exchange, many economists predict the euro could slump to parity against the dollar next year, aided by the Federal Reserve's hawkish stance on interest rates. The Fed's bullish outlook this month pushed the dollar to 10-month yen highs and sent it heading toward parity with the euro for the first time since 2002.

In Asia on Friday, Tokyo retreated again but Hong Kong rallied as Asian markets brought down the curtain on a volatile year. Japan's Nikkei rose 0.42 percent in 2016, marking the fifth consecutive annual increase. Shanghai slumped more than 12 percent on the back of massive capital flight and a languishing yuan currency.

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