Market rally likely to be temporary

Certain factors might have led the market to perform better. Much lucidity from China's policy strategy and its aims, and proper coordination amongst oil producing economies will give some insight. Major central bank's response will also be helpful for markets. The European Central Bank has already hinted at additional policy easing. The US Fed and the Bank of Japan are not expected to undertake new policies this week; however, reassuring messages and a dovish tone might assist in markets to calm. A market correction in risk assets can also be triggered with stability if the oil prices stabilize and RMB stops declining.

Bearish positioning is not firm yet, but it is getting close.  Late last week, the oil prices and RMB looked to be steadying, setting off a positive reaction in equity market. However, the real reason for the recent market sell-off continues to be unaddressed and will continue to manifest themselves in 2016. China is in the midst of a difficult economic rebalancing, which is not expected to be smooth and might lead to considerable uncertainty and policy blunders.

Meanwhile, the US might continue to be under pressure from a stronger US dollar as other central banks require carrying on with easing in order to help their economies. In the post quantitative easing scenario where the US Fed's policy is much weaker, asset prices have to adjust. This will not be a smooth adjustment, mainly in the presence of multiple shocks.

The risk rallies should be sold by investors in this market. According to global investment strategists, 2016 is likely to be very challenging. Assets that performed better under the quantitative easing regime are not expected to perform better as the excess liquidity regime comes to an end.