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Brian Tora: 2014 could see the FTSE 100 reach new highs


The intervention of the Christmas holiday season demands a break in sharing my take on investment matters. Indeed, given that just three weeks have elapsed since I last took stock of market trends, it is remarkable how different the investment scene feels.

For a start, the Santa rally did finally take place and ensured a more comfortable end to the year than felt possible in early December. But 2014 feels as if it is off to a slow start.

There is a hint of normality pervading the air as we gird our loins for the challenges of the year to come, however. Quite how this may translate into market performance is hard to gauge but it may make asset allocation a touch easier to determine. 

The problem with the tinkering with the financial system that characterised recent years through, principally, quantitative easing has been that it became hard to assess what outcomes might arise.

As we return to monetary policies more akin to those which we were once used to, tried and tested models and examples are likely to allow us to determine better how economic trends will pan out. Not that anything is assured in these days of often ill-considered Government intervention.

Still, we might reasonably conclude that the worst of the fallout from the credit crunch is now consigned to history, making our main concern the effects of ending cheap money.

Thus far, emerging markets have suffered the most from investor worries, yet such a retrenchment was probably overdue in any event and simply required this trigger to ensure that
a more realistic assessment of value was established. 

Playing consumption catch-up with the developed world is a continuing theme that will surely endure, even if the real beneficiaries change over time and investment overheating remains a risk.

Thematic investors will doubtless profit from the perception of what will become important as economic power continues its shift from the developed to the developing world. But the big issue which still seems to elude most managers is shifting demographic trends, creating a time bomb in many societies. Profiting from a challenge that seems certain to reverse the expectation hitherto of regularly rising living standards was never likely to be easy but is it impossible?

This is where I find myself in a dilemma. Our policymakers have become more interventionist for the understandable reason (from their point of view) that without demonstrating a genuine concern for those responsible for their re-election, they will be voted out of office. But the pressures placed upon social services and the public purse by an ageing population and a declining workforce are hard to combat.

And do not forget that the wellbeing of the electorate is increasingly becoming dependent on the health of markets. With final salary schemes in seemingly terminal decline and regulation demanding a more predictable outcome for money purchase schemes, governments can no longer afford to ignore how markets may react to events. Get it wrong and headlines will scream that millions will be disadvantaged by adverse conditions.

As a “glass half full” merchant, I have to view 2014 as positive – arguably difficult but with the dice loaded in favour of the risk taker. Indeed, for the first time in half a generation, I believe we have a good chance of establishing a new high for the FTSE 100 index. 

Of course, this needs to be put into context. Mid and smaller cap stocks have already overtaken previous highs but seeing our benchmark index exceed earlier peaks will help confidence. 

Perhaps our biggest challenge will be ensuring euphoria does not set in

Brian Tora is an associate with investment managers JM Finn & Co



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