FTSE lost ground in 2015 amid 'difficult year for investors'
The FTSE 100 Index lost ground in 2015 and brokers do not expect 2016 to be much better, with the market weighed down by low commodity prices and slowing growth in emerging markets.
Alastair George, chief strategist at Edison Investment Research, said "2015 was a difficult year for investors" and warned next year may not be much of an improvement.
He added: "We would not be surprised if major equity indices finished 2016 at levels similar to today - which would be a re-run of 2015."
But analysts at Killik & Co forecast the FTSE will rise to 6750 by the end of 2016, lifted by a moderate pick-up in global growth, especially in Europe and Japan.
Plunging oil prices had a major impact on markets in 2015 and will continue to do so if Brent crude prices continue to languish near 11-year lows.
The cost of crude is currently below 40 US dollars a barrel, compared to the 115 US dollars the commodity commanded in June 2014, leading to thousands of job losses and billions of pounds in spending cuts across the industry.
BP said this year it will cut capital spending to as low as 17 billion US dollars (£11.4 billion) a year in the next two years, from about 19 billion US dollars (£12.8 billion) this year. This is down from an earlier estimate of up to 26 billion (£17.5 billion) a year ago.
BP and Shell have pledged to retain their healthy dividends, which are a staple flow of funds for UK investors. However, returns at firms with fewer cash reserves such as Tullow Oil, or Premier Oil in the FTSE 250, remain in doubt next year.
Oil prices have fallen as the Organisation of the Petroleum Exporting Countries cartel has maintained production levels in a bid to exert pressure on US-based shale oil and gas suppliers.
Richard Hunter, head of equities at broker Hargreaves Lansdown, said: "It may well be that consumers are not complaining in terms of petrol prices or indeed heating their homes, nor those manufacturers which rely on oil to power their businesses.
"The oil companies themselves are cutting costs to the bone and bearing down on any capital investment, with the dividend yield meaning that investors are to some extent being paid to wait for any recovery."
China's downturn last summer saw a number of firms on its stock market slump by 45% since the start of the year, as the second biggest economy in the world was forced to devalue its currency several times in a bid to cope with slowing growth.
The Asian nation had enjoyed almost a decade of double-digit gross domestic product (GDP) growth from the early 2000s, which has slowed to around 7% as the country attempts to digest such breakneck expansion.
Many brokers also suspect China's GDP growth is lower than Beijing has let on.
This has led to led to cutbacks and fundraisings across the mining sector, which over the previous decade has serviced China's fast-growing economy.
Last year Glencore carried out a 2.5 billion US dollars (£1.6 billion) fundraising, to cut its debt mountain of 30 billion US dollars (£20 billion) - which is around twice its market value.
Taken together, oil, mining and banking account for just under 30% of the FTSE 100 Index and explain the market's downward turn last year.
Mr Hunter said: "For 2016, the fortunes of the Chinese economy and any signs of recovering demand will be crucial to improving investor sentiment."
But there will undoubtedly be some winners in 2016.
Hargreaves Lansdown is backing giant insurer Prudential to make gains next year.
The broker says the Pru's "key demographics are playing into its hands". The insurer's three core markets are healthy - growing middle class savers in Asia, the large US baby boomer generation and an ageing population in the UK.
Hargreaves Lansdown said the Pru's solid third quarter update in November is a good indicator of what is to come next year.
The broker said: "As expected, its Asian business retained firm momentum, given its exposure to high quality recurring income in the region, whilst challenges for its US and UK businesses continued to be successfully navigated."
Housebuilders in 2016 may also continue the good run they enjoyed last year.
A clutch of housebuilders such as Taylor Wimpey, Barratt Developments and Persimmon were among the biggest risers of the year, supported by record low mortgage rates and favourable government policy.
The Government has extended its Help to Buy programme until 2020, while in September it said it wanted the industry to build one million new homes by 2020.
This compares with 460,000 homes that were built between 2011 and 2014, according to the National Housing Federation.
Brokers at Hargreaves Lansdown said the Bank of England will have to raise interest rates eventually, but the Bank has said any increases are likely to be gradual. The broker said this suggests housebuilders' "purple patch" could run further in 2016.