Another good year for equity markets

For a year that started off with concerns about another euro crisis and a triple dip recession in the UK, developed equity markets performed strongly in 2013.

equity-_markets

The performances shown above hide several factors which could be important in 2014:

  • Another poor year for the commodity-based multinationals was one major reason why the UK stock market failed to keep pace with the US. There is little expectation of a commodities rebound in 2014.
  • The more UK-centric businesses again did much better, witness the performance of the FTSE 250, which measures the 250 companies below the top 100 – about 15% of the UK stockmarket. The FTSE 250 gained 28.8% in 2013, which explains why the broader FTSE All-Share Index repeated its 2012 out-performance of the more widely quoted FTSE 100.
  • Sterling had a good year, which reduced the returns for UK investors in many foreign markets. This was very noticeable in Japan, where sterling rose by 24.9% against the Yen. Even against the dollar the pound added 1.9%. There is now some concern that the strength of sterling will start to hit UK exports.
  • Emerging markets had a generally disappointing year, witness the fall in the MSCI index. The US Federal Reserve’s plan for tapering QE (see below) worried investors in emerging markets, particularly those which rely on foreign capital inflows.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

10th January 2014

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