January Market Commentary

‘2013 was a good year for Greece’ – some unexpected words to start our first bulletin of the year with, but among some truly impressive stock market performances in 2013 the Greek index was up 27% to close at 1,163. It’s perhaps still not the place where widows and orphans should be investing, but rather an indication that the outlook for the world economy at the end of 2013 was much more optimistic than it had been at the beginning.

It would be tempting to conclude that the global financial crisis, which started in 2008 duly ended in 2013 – that five years of lean are now to be followed by five years of plenty and we should all invest accordingly. Sadly, that may not be the case, and although there are definite reasons for optimism as 2014 begins, there are also reasons to be careful as well. In particular, recent years have seen significant amounts of quantitative easing, but this must now inevitably start to taper off, governments cannot keep flooding the markets with money.


December started with Mark Carney, the Governor of the Bank of England, making an early bid for the lead role in Scrooge as he warned UK homeowners that they couldn’t rely on future house price rises to bail them out. “Can you afford your mortgage?” he cheerfully asked people who were wondering if they could afford their children’s Christmas lists.

At the time he was possibly proved right as figures published at the end of the month showed that 13 million people paid for Christmas using some form of credit. With the UK jobless total now falling, 2014 could be the year in which interest rates finally start to rise, with the obvious consequences for those with a mortgage.

David Cameron started the month with a trade trip to China, a trip deemed so important that George Osborne’s Autumn Statement was pushed back by a day to accommodate it. Nevertheless, it was an upbeat Chancellor who reported on a distinctly improved outlook for the UK economy. Let’s not forget that at the start of the year there were real fears about the UK slipping back into a ‘triple dip’ recession. However, anyone looking for giveaways in the forthcoming March Budget is likely to be disappointed, ‘a cautious and careful recovery’ will continue to be the Chancellor’s mantra. Giveaways and tax handouts – if they come at all – are likely to be saved for next year.

As noted above, the UK jobless total fell to a four year low of 7.4%, with figures for the three months to October confirming a figure of 2.39m. This edged the UK closer to the level at which the Bank of England will consider raising interest rates – 7% is the benchmark.

Despite the lure of Christmas, the UK high street was not a happy place for shareholders. Marks & Spencers and Debenhams saw their shares slump amid widespread pre-Christmas discounting and caution from shoppers. Debenhams shares were down a further 11% after the holiday as the early trading figures confirmed analysts’ worst fears.

Mortgage approvals went in exactly the opposite direction, with approvals for November 2013 up 37% on November 2012. However, business lending remains depressed. Howard Archer, UK economist for HIS Global Insight said: “November’s data does little to fire optimism that banks are now becoming more prepared to lend to businesses given the improved economic situation and outlook.”

The FTSE-100 index finished the year at 6,749 – only up 1% in December, but overall up a very healthy 14% from the 5,898 at which it started 2013.


As noted above, 2013 turned out to be a good year for Greece and it may also turn out to be a significant year for Latvia. Despite a notable lack of public enthusiasm, Latvia became the 18th country to adopt the Euro, joining at midnight on December 31st.

Elsewhere attention was focused on France, where unemployment rose to 3.29m with Francois Hollande struggling to deliver on a pre-election pledge to reduce unemployment. The second largest economy in the Eurozone is on the brink of another recession, with a third-quarter decline in GDP being compounded by poor manufacturing figures for November. With an extra 17,800 job-seekers signing on in November, unemployment is now at 10.5% of the working population.

There was also bad news for some of those in France who are employed, as the French courts confirmed one of M. Hollande’s signature policies – a 75% tax on the very highly paid. Expect to see a queue of wealthy footballers from Paris St Germain in the departures lounge…

As we’ve already noted, the Greek stock market was up 27% in 2013. What of the more significant economies? The German DAX index closed December up 2% at 9,552 to record a 25% gain on the year. The French stock market was up 18% in 2013 at 4,296 – but rose by only a single point in December.


December’s most significant event in the US came in the week before Christmas, when the Federal Reserve (Fed) issued an upbeat assessment of the country’s economy. It announced that it would begin tapering the $85bn per month bond-buying programme, starting with a $10bn reduction in January.

As we noted in the introduction, some investors saw this as a landmark moment in the global financial crisis, marking the beginning of the end of five years of unprecedented stimulus measures. The Fed also gave a pledge to keep interest rates low, and markets around the world responded favourably, with both the Dow Jones and the Japanese stock markets hitting record highs. Gold also dropped below $1,200 an ounce for the first time since June.

The Fed’s move was prompted by improved US data on jobs, growth, spending and investment – and by the fact that the Republican and Democrat parties now seem to realise that they need to work together.

However, despite all this good news the US trade deficit resolutely refuses to fall, with figures released for October confirming another monthly deficit in excess of $40bn – which means that the US is adding a trillion dollars of foreign debt every two years.

On Wall Street, the Dow Jones index finished the year at 16,577 – up 3% in December and a very healthy 27% higher than its starting level for 2013.

Far East

No two ways about it, the star among the world’s major stock markets in 2013 was Japan. The Nikkei Dow rose another 4% in December to 16,291 to finish the year up 57% – its best annual performance since 1972.

Again, it is tempting to think that this must mean all is well, but the Nikkei’s boom has largely been driven by ‘Abenomics.’ Shinzo Abe, Japan’s Prime Minister, came to power in 2012 on a promise to return Japan’s economy to health after years of stagnation. His economic policy – known as the ‘three arrows’ – involved aggressive monetary easing, large scale public investment and structural reforms of the economy.

The monetary easing saw the Bank of Japan come up with a stimulus of 60-70 trillion Yen (£355-415bn) in April in a bid to double the country’s money supply and get inflation to 2% within two years. This move sent the Yen to a five year low against the dollar and boosted exports but, as we noted above, such moves cannot continue indefinitely.

Tensions with China also continued to simmer over the disputed Senkaku Islands, and there are signs that new Chinese leader Xi Jinping may take more of a hardline approach than his predecessor. There is also a Chinese/South Korean airspace dispute to take into account, not to mention the perennial wild card that is North Korea.

Meanwhile the Chinese economy rumbled on, with the People’s Bank of China injecting an extra $50bn of liquidity into the economy to ease fears of a credit crunch as interest rates rose to nearly 10%.

China’s trade surplus for November was a trifling $33.8bn – the highest since January 2009 and up from $31.1bn in October. The annual rate of inflation slowed to 3%. South Korea also had a good end to the year, recording a trade surplus of $4.8bn in November and seeing unemployment fall to a record low of 2.9%.

On the stock markets, China and Hong Kong recorded markedly different performances to the success enjoyed by Japan. The Chinese market closed the year at 2,116 – down 5% in December and down by the same amount for the year as a whole. The Hong Kong index was up in 2013, but only by 3%, ending the year at 23,306.

Emerging Markets

2013 was generally a good year for stock markets around the world – but there was one stellar performance and readers of this bulletin won’t be surprised to learn that Venezuela was again the world’s leading stock market, with an eye-watering rise of 452%. They were also impressive performances from Iceland, Zambia and Nigeria.

Among the bigger markets, India finished the year at 21,170 – up 2% in December and up 9% on the year overall. The Russian market was more subdued, rising by only 2% in 2013 to close the year at 1,503. Brazil, constantly plagued by unfavourable publicity over preparations for the World Cup and the Olympics – and by public discontent over the cost of the events – endured a miserable year, with the stock market down by 2% in December and 15% for the whole year, closing at 51,507.

And finally…

Most of us will at some time in our lives have unwrapped a Christmas present to discover a magic kit. If you did actually make Granny disappear and made it into the professional ranks, one of the standard tricks in your armoury will now be tearing up a five pound note in front of your astonished audience – and then restoring it whole.

Sadly, this trick may be on the way out as – to the consternation of the Magic Circle – the UK is to move to tougher, polymer bank notes. But as one door closes another opens. According to magician Will Houston it will be much easier to make the currency reappear in the middle of a fruit cake. “If you do that with a traditional bank note,” he says, “It just comes out sodden with lemon juice. With polymer you can just wipe the note clean and the person can put it back in their pocket.”

So there’s something to look forward to as you cut of a slice of Christmas cake next year…