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Market Watch: Investors reflecting on a very good year

By Exeter Express and Echo  |  Posted: December 19, 2013

By Paul Lewis, Charles Stanley stockbrokers


Paul Lewis

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Overall 2013 was a very good year for equity investors as the FTSE 250 Index is some 24 per cent higher and the FTSE 100 is up 11 per cent.

Global equity inflows reached a 10-year high and this has helped markets reach these levels, coupled with a broader economic recovery, particularly in the UK.

Europe continued to hold back further progress in markets during 2013 and this may be a recurring theme during 2014.

So what do investors expect over the next 12 months?

I expect the UK economy to continue to grow and it could well beat the 2.4 per cent growth expected by the recent Office for Budget Responsibility forecast. The world economy is expected to grow further and equities look set to continue to be the asset class of choice ahead of bonds and commodities until interest rates start to rise.

Equities have enjoyed their strong run on the back of printing money, which may be about to come to an end, particularly in the US with the Federal Reserve meeting due to announce the extent of future support as we read this article.

Companies are more highly valued than a year ago and for markets to make significant headway companies will have to deliver strong increases in profits to maintain current values. For this to happen we will need to see real wage growth and exports picking up.

If the UK continues to expand then the threat of interest rates rising becomes ever more present, although I am not expecting any rate rise during the next 12 months.

However, the thought of rates rising may hold back the property market and cash investors may be more inclined towards holding cash than equities as move through the year.

Therefore in summary 2014 looks to be another good year for markets but as in previous years there will be bumps along the way. A secondary banking crisis in southern Europe would never surprise me as economies continue to struggle with the powerhouses of France, Germany and Italy providing insufficient support.

With share prices looking stretched without further profits coming through and less support from central banks, the clever money will be in companies which can make further money without monetary stimulus.

My tips for 2014 will appear after Christmas but in the meantime I wish readers a healthy and prosperous 2014.

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