Our Markets and Economic Outlook 2013 is posted in continuity of the annual ‘guestimates’ we make regarding prospects for the coming year. It is a ‘house’ view of the economy and the markets for the year ahead – a view on which we base our investment recommendations (at least for the early part of the coming year). This article, produced so our clients can anticipate the recommendations regarding their investment decisions over the next several months, is general in nature: it does not constitute advice. Individual advice needs to be framed around your own needs, goals and circumstances as an investor.
Equities: We see 2013 as being a positive year, with gains in most regions including the USA, Europe, Japan, Asia – and Emerging Markets generally. In realistic terms, we anticipate that there will be continued volatility in share market values around the globe (particularly during the second and third quarters), but at much less extremes than have been experienced in recent years. As is often the case with share markets, the run up can over-shoot and there will be corrections: three particular times we anticipate these to occur early in the second quarter; during May; and possibly late in the third quarter (or early in the fourth quarter).
We see 2014 as being positive for the markets as well, possibly at a lower rate of growth – but also with even less volatility.
The picture is not so clear for these markets. Already this year we are seeing yields oscillate between increases (capital value falling) and decreases within a fairly tight range. As the ‘right-leveraging’ of households, businesses and economies settle in, we anticipate that Bonds (both sovereign and corporate) will become less attractive because of their low coupon rate and will be further abandoned in favour of the more ‘productive’ equities.
In many cases around the world, returns on Bonds is clearly negative (inflation is higher than the coupon rate) and there is little perceived opportunity for capital growth – driving investors back to equities.
We expect this situation to further deteriorate during 2014 as investors crave tax effective income as economies slowly improve, inflation gradually comes back into consideration – and low central bank interest rates persist, pending returns to more normal levels of employment.
Markets peaked in December 2007, but economies kept progressing for more than a year after the decline (it wasn’t until after the collapse of Lehman Bros in New York that economies around the world experienced the tsunami of the GFC that followed).
Since late-2008 governments around the world have employed various stimuli to sustain and/ or restore their economies. We are now in the fifth year of the recovery process and there is a lot of anticipation that the restoration will gather momentum, feeding off its own activity (and allow for an orderly unwinding of the stimulus).
Regionally, the United States is looking sound for a slow but mildly positive year; Europe is showing signs that the recessions will end, perhaps during the second quarter; Asia generally is posting positive economic data – and outlooks; and a number of the emerging and frontier markets (including Central and South America, parts of Asia and Africa) are lifting. Whilst much of the hope is based on the consumption levels in the developed economies of Europe and the USA, the substantial improvement in economic circumstance for the populace in the rest of the world is fuelling global improvement.
We anticipate that this could hold through three calendar years (2013 through 2015) – subject of course to political stability and the absence of major shocks from unexpected sources.
Advisors at Continuum Financial Planners study the markets and the commentaries on them from a number of sources: our outlook will be updated later in the year, but as clients, you can expect that this research is brought to bear in formulating the recommendations we make when seeking solutions to your longer-term wealth management challenges and strategies.