The coming year will likely see a very similar set of results as the previous year. While the Federal Reserve has announced the tapering of its bond buying program, it has not yet announced the end of the program and the uncertainty is likely to continue to plague the bond and commodity markets as well as emerging market stocks. Main Market equities are likely to still be the best place to have funds in the coming year, however returns are not likely to be as high as in 2013. However, we do still expect to see returns over 9% in the coming year.

Gold and commodities are likely to continue to see price falls and Gold could eventually stabilize around the $800 mark.

One key driver that may emerge in 2014 is substantial drops in world oil prices. As the US shale revolution continues to strengthen we are also likely to see many key producers come back on line. New pipelines in Iraq as well as a return to production in Libya and the dropping of Iranian sanctions could see a substantial increase in oil production. A move to a consumption based economy in China as well as increasing fuel efficiency in Europe and North America mean that demand is unlikely to rise at the same rate as supply. Many experts predict a drop in the price of oil in the USA to nearly $80 a barrel.

This drop in oil prices will result in two key investment trends. Firstly, a drop in oil prices will allow central banks to keep monetary policy looser for longer. This is likely to have a positive impact on equity and property prices. However, areas flirting with deflation in the Eurozone and Japan may experience further problems with deflation if they are unable or unwilling to reflate their economies fast enough. These deflationary pressures may be further exacerbated by the vast increase in Chinese production over the past few years.

The second trend that is likely to emerge is a rise in the importance of western consumers. Oil prices have risen substantially since the end of the 1990s and western consumers have borne the full brunt of this. Since the late 1990s median incomes have not risen in most western economies when adjusted for inflation. This is one of the longest periods of the past century when average incomes have not increased. Falling oil prices are likely to see an increase in consumption in key economies from the USA to Europe.

The best strategies to take advantage of this trend are likely to be the following:

1. Buying Transport Stocks especially airlines and mid-range cars manufacturers.
2. Buying retail stocks especially clothing and middle market retail.
3. Selling or shorting energy stocks especially smaller companies and those reliant on exploration.
4. Shorting oil prices and gold.
5. Non luxury residential property is also likely to do well in this environment although it may take some time for this to filter down to the property market.

In the coming year the Malaysian ringgit is likely to weaken considerably. The Australian dollar is also likely to continue to fall. GBP and USD are likely to be the two best performers of next year.

Main Market Equity

We expect to see gains of around 9% in 2014

Corporate and Government Bonds

We expect continuing drops until at least the middle of 2014

Commodities

Most hard commodities will continue to fall in 2014. Oil may do particularly badly.

Gold

Gold prices will continue to fall for the next year and will likely drop below $1000 in 2014.

Property

Property in the UK and the USA will continue to rise. Most Asian markets will perform poorly in 2014.

Emerging Market Equity

Emerging markets are likely to drop further in the first half of 2014

Emerging Market Bonds

Emerging market bonds will continue to drop for the first half of 2014 but may experience growth in the second half.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia

The past year has seen a mixed performance across asset classes. While US Equity in particular achieved one of its best ever annual returns, most asset classes have experienced drops. The looming threat of the end of the Federal Reserve’s Quantatitve Easing program has seen drops in bond, commodity and gold prices. In addition, fears of a slowing of credit have hit emerging markets from Brazil to China hard.

In addition, the year 2013 may well have seen the beginning of a rebalancing of the world economy back from emerging markets and Asia to the USA and other developed economies. The drops in bond markets over the past year may also make 2013 one of the worst years in recent history for mixed asset managers from hedge funds to asset allocation funds.

Main Market Equity

Main market equity has been perhaps the best performing investment of the past 12 months. Markets in the USA and parts of Europe have surged to all-time highs; in addition Abenomics in Japan has caused a surge on the Nikki 225 of almost 50%.

Government and Corporate bonds

High demand for credit worthy government and corporate bonds after 2008 pushed prices up substantially. These prices were further exacerbated by the printing of more than $ 3 trillion worth of extra money by global central banks, most of which went into purchasing government and corporate debt. With the anticipation of the end of this money printing exercise, bond prices had become unsustainable by the end of 2012 and the past year saw a substantial drop in most bond prices from the UK to Japan.

High Yield Bonds

High yield bonds had also risen to unsustainable levels after the credit crunch and an improvement in company credit worthiness was insufficient to offset drops caused by the speculation of the end of the QE program.

Commodities

Large amounts of money have flown into the commodities market as a result of the QE program. The anticipation of the end of this is coupled with the dramatic slowdown in demand from emerging markets. Meanwhile there has been an increase in supply with large new mines coming on stream as well as increased oil and gas production in the USA as a result of the shale revolution.

Gold

Gold has seen substantial drops across 2013. While the threat of NATO action in Libya was enough to temporarily halt this fall, gold prices have now fallen by around 60% off of their all-time highs.

Property

Property has experienced a mixed bag in 2013 and has had a similar experience to the equity markets. While cracks have appeared in Asian property markets and price falls have begun, western property markets have fared better. Although US house prices have begun to recover, there continues to be vast over-supply in key markets such as California and Florida.

The UK has seen large increases in residential and commercial property in central London, however property markets outside the South East region continue to be depressed and most have not yet surpassed their 2007 peak

Emerging Markets Equity

Virtually all emerging markets performed badly in 2013. The MSCI Emerging Market Index dropped by 12% across the year. Concerns over the new policy direction of the Chinese government and the end of QE in the USA have combined to continue the declines that started in 2012. Emerging markets remain substantially off of their 2008 peak levels and it may take many years for these markets to return to these previous levels.

Emerging Market Bonds

The same forces that have served to lower prices on western bonds have also affected emerging market bonds. In addition, fiscal concerns over several main emerging markets have also caused depression across much of the emerging market debt market.

I hope that you have enjoyed reading this post.

Stuart Yeomans 

CEO

Farringdon Group

Kuala Lumpur : Malaysia