Investors should strap themselves in for a year of "episodic volatility" with "choppy price action" throughout most of 2016, says Triple3 Partners.
Triple3 Partners chief executive Simon Ho predicted 2016 will be a year episodic volatility rather than "wildly veering highs and lows".
“The Bank of Japan’s surprise move to cut interest rates to negative 0.1 per cent took the market by surprise last week, and is a good example of the type of episodic volatility we can expect," Mr Ho said.
"We’ve seen a month of sell-off, followed by markets screaming higher as a result of Japan’s unforeseeable move. This gives weight to the notion that we will see choppy price action in 2016.
"The past two and a half years have been an unusual time of low volatility as markets were largely insulated because of the actions of the central banks. With QE now officially at an end in the US, we are entering a new market environment," Mr Ho said.
Despite the aggressive selloff since the beginning of the year, markets are now likely to bounce back, he said.
But investors are likely to see the volatility of January continue for the rest of the year.
"The past month is a portent of what is to come on the markets this year – bouts of volatility. It will not be calamitous as it was in 2008. It hasn’t been like that and it won’t be like that. Instead we will see small markets movements of a few per cent frequently, rather than any large GFC-like one day falls," Mr Ho said.
"Despite the market movements we have seen over the past month, Mr Ho says the VIX index – a measure of volatility on markets – has been quite muted.
"The average level of the VIX since its inception in 1990 has been at around 19. When markets experienced extreme volatility in August 2014 the VIX spiked intraday to well above 40. Today it is sitting at 22 and has been around this level for most of the month of January," Mr Ho said.