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Investment outlook for 2014

Beijing, central district, where growth has been fierce but many worry about future
Beijing, central district, where growth has been fierce but many worry about future
After a surprisingly buoyant 2013 for stock markets, investors are looking forward to further gains in 2014. So what do the next 12 months have in store?

John Greenwood, chief economist at Invesco Perpetual, expects the recovery in the US and UK to continue, but can see plenty of problems elsewhere. “I have much more concern about the eurozone. It’s not so much recovering as bottoming-out and bumping along the bottom.”

Greenwood is also concerned that Japan’s huge government stimulus programme will weaken, and that China will run into massive credit problems, after racking up so much debt to keep its boom rolling.

Jamie Hooper, manager of the AXA Framlington UK Growth Fund, believes large UK companies are set for a strong year. “We have been buying stocks such as mining giant Rio Tinto, oil major BP and pharmaceutical firm GlaxoSmithkline, which all have strong prospects.”

Like many analysts, Hooper’s biggest concern is the impact of so-called ‘tapering’ in the US, as the Federal Reserve looks to slow its programme of quantitative easing (QE). “The US economy is proving resilient and companies are in great shape, so it should survive in good shape.”

But QE tapering is likely to hit emerging markets far harder, warns Maarten-Jan Bakkum, emerging market strategist at ING IM. “When the US first hinted about tapering, capital flows dried up, currency values plunged, bonds and stocks took a beating and, perhaps most importantly, the blind faith in emerging markets was badly dented. Once the Fed starts tapering its money creation early next year, the pressure on the emerging world will grow further.”

A full-blown emerging markets crisis still remains unlikely, says Richard Titherington, manager of JPMorgan Global Emerging Markets Income Trust. “Even if markets do plunge, it’s a buying opportunity for long-term investors.”

Oil and gas producer Russia could prove a wild card in 2014. Michael Levy, investment manager at Baring Russia Fund, says its outlook is brighter than in recent years, as its domestic economy grows and it spends more on infrastructure. “Investors in Russia should feel encouraged by the prospects for the market as we head into 2014.”

2013 surprised us all by how positive it was, especially with growth returning to the UK, but 2014 could prove surprisingly bumpy for investors.

By Harvey Jones

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