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

Investing

Gareth Trainor

24th February 2014 at 3:38pm

2013 turned out to be a cracking year for many equity investors, with most markets around the world enjoying significant rises. Can that performance be sustained into 2014? Will certain countries and areas do better than others? What about investments in other asset classes, like bonds and commercial property? Are they worth keeping or should you be looking to move your money elsewhere?

Of course, I don’t have a crystal ball, and can’t forecast for sure where markets will be a year from now. But, taking into account some sound market insight from Standard Life Investments along with other market indicators, here are some factors to consider when making your investment decisions this year.

As there’s a lot of ground to cover, in this blog I focus on the US, UK and Europe. In part 2 (coming soon) I’ll take a look at the rest of the world, bonds and commercial property.

The US – leading the way?

Let’s kick things off with a trip across the Atlantic and a look at the US. The US equity market was one of the standouts of 2013, and it’s still one that Standard Life Investments favours.

Despite some doom and gloom surrounding the US economy and politics in 2013, it’s worth pointing out that business activity was actually quite strong in the second part of the year. Not only did the labour market and wider business activity prove quite resilient in the face of significant tightening of spending policies, but October’s government shutdown and political arguments over the debt ceiling appear to have had little impact on private sector business activity. With much less austerity in the pipeline, Standard Life Investments remains confident that economic growth will pick up and be close to 3% in 2014.

Last year the US Federal Reserve (the Fed) announced it was planning to reduce or ‘taper’ its quantitative easing activity. Investors’ concerns about this announcement were reflected in some market volatility in the second part of 2013. However, Standard Life Investments believes that last year’s concerns, together with much more use of forward guidance by the Fed on its plans, should mean that its implementation need not lead to significant market volatility during 2014.

The UK – green shoots

UK equity markets enjoyed substantial rises in the first part of 2013, although the summer proved rather more difficult, with a significant fall in May and June, Like many other markets, Europe enjoyed a recovery in 2013, with investors seeing strong equity returns. before share prices picked up again. This is another of SLI’s favoured markets in 2014, taking into account the prospect of a broadening out in the economy, with more domestic demand for products and services.

The financial crisis was the start of a horrible period for the UK economy. However, last year saw some green shoots of recovery, which look set to continue into 2014 as lending becomes easier. According to Standard Life Investments, business surveys and leading indicators suggests overall economic growth could reach 2-3%.

Europe – the difficult child

Like many other markets, Europe enjoyed a recovery in 2013, with investors seeing strong equity returns. However, there remain significant economic and political issues within the Eurozone.  This includes a further write-off of Greek debt despite the significant bailouts over the last few years.  Another potential bailout for Portugal appears to be on the cards, as well as a move towards European banking union – all of which could have an impact on investor confidence.

Standard Life Investments believes there are four main things that could stimulate growth and reduce uncertainty in the year ahead. The financial crisis was the start of a horrible period for the UK economy. However, last year saw some green shoots of recovery, which look set to continue into 2014 as lending becomes easier. First, the European Central Bank will need to be more proactive in how and when it implements policies. Secondly, there need to be clearer steps towards genuine banking union. Thirdly, it’s also critical that domestic demand continues to improve within the German economy. Finally, Italy and France need to follow Spain in accelerating their reform agendas in order to stimulate their economies. Until there’s evidence that these steps are taking place, Standard Life Investments remains cautious on the prospects for European equities.

Overall 2014 promises to be an interesting year across US, UK and European markets. In my next blog I’ll be travelling East to take in the rest of the world and focusing on bonds and commercial property.

To be continued…

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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