Gold Magazine January - February 2014, Issue 34

COVER STORY 2013 GOOD FOR THE WORLD’S STOCK MARKETS W orld stock markets ended 2013 close to six-year peaks and benchmark bond yields were poised for their first annual rise since 2009 as investors celebrated a pick-up in THERE IS ALMOST A COMPLACENCY ABOUT NEXT YEAR AND HOW WELL IT COULD GO global growth with expectations of more to come. Thanks to ultra-easy monetary policies and an improving economic outlook, equities enjoyed a vintage year in 2013. Wall Street enjoyed its best year since 1997 with a 29% gain, while Japan’s Nikkei ended up 56.7% and European shares gained 16%. MSCI’s all-country world equity index was flat at 407.42 points on 31 December, 2013, having hit its highest since late 2007 at 407.65 on 30 December. The FTSEurofirst 300 index of top European shares was up 0.13% at 1,313.52 points, its best year since 2009. Assets favoured by investors in economic downturns took a beating in 2013, with top-rated US and German bond yields trading near the highest in around two years and gold limping towards its worst annual performance in three decades. With bets that the economic recovery will continue even as the US central bank steadily trims its bond-buying stimulus and that the eurozone will take more steps towards overcoming its debt crisis, investors look for more of the same in 2014. “There is almost a complacency about next year and how well it could go,” said Hans Peterson, head of asset allocation at SEB investment management. “There is still abundant liquidity even if the Fed started to taper and I think that is still the main theme ... Everything looks nice and easy right now.” Reuters polls show European stocks are expected to hit new highs in 2014, while Chinese, US and other major stock markets are also seen posting solid gains. Gold is expected to remain depressed, while benchmark bond yields are seen rising only slightly, despite investors’ preference for riskier assets, the polls show. Analysts do not foresee a sharp bond sell-off because inflation in major economies is expected to remain stubbornly low, while the European Central Bank and the Federal Reserve have pledged to keep interest rates low for a prolonged period. While staying overweight in equities, Didier Duret, Chief Investment Officer at ABN AMRO private banking, said 2014 “will be a good opportunity to ... buy some good quality bonds as yields pick up above 3% in the US and above 2% in Germany.” The yield on the US 10-year Treasury note, which sets the standard for global borrowing costs, has risen to almost 3% from 1.75% at the start of the year, but it is seen rising to only 3.35% in 2014. Emerging markets have been a noted exception to the rally in equities. MSCI’s EM Index fell 5% in 2013 on worries that cuts in global monetary stimulus could expose economic imbalances and as funds return to the rich world. EURO T he euro ended 2013 close to its highest level in two years against the dollar, but a Reuters poll shows it is expected to reverse its upward trend this year as the continued soft stance of the ECB contrasts with the Fed’s. On 31 December, the single currency was steady at $1.3790, up more than 4% for the year. The easing of the eurozone crisis and signs of a pick-up in economic activity even in the bloc’s weakest members have offered strong support to the euro and brought Italian and Spanish debt yields to just over half their crisis peaks. At the end of the year, a rise in money market rates due to thin yearend liquidity gave the single currency extra impetus, but there are some expectations the ECB may react with new long-term liquidity injections into the banking system if that continues in 2014. “Diminishing eurozone market liquidity, a steeper yield curve and a stronger euro will do little to resolve the ECB’s deflationary credit crunch dilemma,” said Lena Komileva, managing director at G+ Economics, in a note. “It would be too soon to expect that the ECB will respond with renewed liquidity easing at its January 2014 meeting, but it is clear that conditions warrant close monitoring and readiness for swift action.” 18 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS cover_story.indd 18 08/01/2014 16:42

Gold Magazine January - February 2014, Issue 34 | Seite 18