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Brian Tora: Overall 2013 has been kind to investors


I can never truly make my mind up as to whether I should be looking back or looking forward as we approach the end of the year.

What investors and their advisers wish to know is what the future holds in store. Knowing, as I do, that such information is concealed from us, glancing at the year about to pass seems the sensible option. It probably won’t prevent me from taking a swing at what might lay ahead, though.

Overall 2013 has treated investors relatively kindly. Generously, even, in some areas.

While the final vestiges of the credit crunch may not yet have been finally laid to rest, the reality is that we face 2014 with more confidence in the financial system than might have seemed possible a year or so ago. Investors should have made money in the year just passing.

Where the best opportunities lay were, perhaps, less apparent as we approached Christmas 2012.

That Japan should have proved the most fertile ground for investors should probably not come as too much of a surprise. It has, after all, been the graveyard of investment ambitions for nearly a quarter of a century. The 50 per cent plus rise in the Nikkei Dow since the year began propels the world’s third largest economy to the forefront of equity return deliverers – fuelled, cynics would claim, on the high octane mix of monetary easing.

But it has been easy and cheap money that has driven returns – or lack of them – in a year that has not provided unalloyed joy to managers. The US, sturdily at the forefront of cash creation, provided the second best result amongst developed markets, with a rise of over 26 per cent since the start of the year. But rumours that quantitative easing would be tapered – not stopped, you understand, merely reduced – was enough to send emerging markets into reverse.

Overall the MSCI Emerging Markets index just crawled into positive territory by the middle of last week – recording a rise of less than 1 per cent. Some markets did suffer more, though. Brazil, which just two years ago overtook the UK to become the world’s sixth largest economy, saw a near 7 per cent decline in its stock market. Russia and China managed plusses, but India labours under inflationary pressures. Emerging markets are hardly a homogenous group.

Back home, the near 11 per cent rise in the FTSE 100 Index concealed some wide variations further down the capitalisation scale. While the much vaunted benchmark was held back by mining and resource stocks, the more UK centric 250 index recorded an advance of nearly a quarter. Smaller cap stocks did even better – up by 27 per cent.

he good news regarding the UK economy the Chancellor felt able to trumpet in his Autumn Statement has clearly trickled through to investor perceptions.

In Europe, relief over Angela Merkel’s re-election might have propelled Germany to the top of the table, delivering a near 20 per cent advance in its market, but concerns elsewhere held the average down to just 15 per cent, with France only 12 per cent up this year.

The remarkable aspect of 2013 must be that the single currency zone has held together, and with the Euro now strengthening, after a period of weakness, confidence is clearly returning.

One of the strangest elements in looking back over a year is what you have forgotten – perhaps conveniently. I could have sworn that the pound was actually higher last week against the Euro than at the beginning of the year. I would have been wrong. It is actually around 3 per cent lower, despite recent strength. True, it is up against the dollar, but then what isn’t? Currency movements in the year to come may turn out to be crucial.

So we approach 2014 with little foreknowledge of what is to come. Gold sits on the sidelines, down a quarter since the start of the year, but fragile economic growth seems embedded in. Central banks will continue to drive both sentiment and demand for risk assets.

If I have one concern over next year, it is the unanimity of positive forecasts amongst the cognoscenti.

I wish you all a happy, and hopeful, new year.

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



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