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.
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 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 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.
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Kuala Lumpur : Malaysia