The market outlook for 2014 – boom, bust or somewhere in between? Part 2

Investing

Gareth Trainor

26th February 2014 at 11:15am

In my previous blog ‘The market outlook for 2014 – boom, bust or somewhere in between? Part 1’   I looked at Standard Life Investments’ view on how areas such as the US, UK and Europe are positioned going in to 2014. In this blog I’ll be looking East to take in the rest of the world and focusing on bonds and commercial property.

The rest of the world – a mixed bag

While the developed world suffered in the wake of the financial crisis, emerging market economies bucked the trend and provided investors with strong returns. However, the last couple of years have proved more difficult for equity markets in many of these regions. Longer term, there’s likely to be more divergence in how different countries perform as economic factors, both domestic and global, will affect them in different ways. While the developed world suffered in the wake of the financial crisis, emerging market economies bucked the trend and provided investors with strong returns. This reflects Standard Life Investments’ view on these markets – it sees the countries which have strong reform agendas or the best fundamentals as the ones which will prosper. It highlights China as one country which has grabbed the proverbial bull by its horns, with the recently announced economic reforms a positive sign for the future.

Meanwhile, after decades of deflation and stagnation, Japan at last seems to be a positive story. The man behind the country’s economic transformation, Prime Minister Abe, was re-elected last year by a significant margin, confirming that the Japanese people have confidence in his policies. Japan was also one of the world’s fastest-growing economies in 2013. This confidence was reflected in the returns enjoyed by investors. Can these be sustained? Standard Life Investments believes so, as long as the central bank is supportive and the government presses ahead with reforms.

Bonds – moving on

On the whole 2013 wasn’t a good year for bond investors, except those prepared to invest in more risky areas of the markets – for example government bonds issued by the more unstable Eurozone countries or emerging market countries, or high yielding corporate debt. While Standard Life Investments does expect some movement out of fixed income into riskier assets such as equities and commercial property, it believes this will only be gradual as there are good reasons why institutional investors wish to keep some of their money in bonds.

In 2014, Standard Life Investments sees the Eurozone bond market as offering the most value for investors. There are also opportunities in emerging market debt although, as with emerging market equities, Standard Life Investments sees more scope in some countries than others.

Commercial property – an attractive proposition

Commercial property returns are inextricably linked to the strength of underlying economic fundamentals. As economic momentum improves, so does business confidence, hiring and demand for property. Recent years have not seen much new build. In 2014, Standard Life Investments sees the Eurozone bond market as offering the most value for investors. But, according to Standard Life Investments, the triggers that it monitors for UK commercial property have recently turned to green, signalling growth ahead. It sees a depth and credibility to this upturn, and anticipates a longer-term improvement from here. Indeed, it expects close to double-digit returns over the next few years from this asset class.

Around the world in 2 blogs

Well, there we have it, my market outlook for 2014. We’ve seen we’ve got areas of growth, some room for recovery and propositions worth considering. However, if you’d like to read more on Standard Life Investments’ outlooks for different areas and asset classes, the Views section of its website will give you some valuable insight.

The value of an investment can fall as well as rise and is not guaranteed. You may get back less than you put in. Past performance is not a guide to future performance.

The opinions expressed are those of Standard Life Investments and are subject to change at any time due to changes in market or economic conditions.

The views and conclusions expressed in this communication are for general interest only and should not be taken as investment advice or as an invitation to purchase or sell any specific security.

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