IF WE have to go through 2013 in a similar vein to 2012, with a record number of Eurogroup, Ecofin, Euro summit, and FinMin meetings, my patience will be severely tested. It’s about time we moved on from over-analysing upcoming banking unions or aid packages. We need to return to a sense of normality, and to make business decisions based on investing, rather than reacting through short-term trading.
But predicting the year ahead can be tricky. To help me out, I asked Mike Franklin, head of investment strategy at Beaufort International, how he’s feeling about 2013. To sum up, there are no free lunches.
According to Franklin, economic recovery will continue in the US and China, while Europe will lag behind. In turn, if Europe doesn’t recover quickly enough, there’s a real possibility the UK will lose its AAA credit rating, though the market impact would be limited. People will be practical – if they hold sterling or UK bonds, they’ll probably see reason to keep them. Among bond profiles, the UK has a relatively long duration, and that is encouraging. This means the UK doesn’t have to come to the market as frequently as other countries.
In my very unscientific method of asking guests what they think about equities, most reply that they think global stocks will continue to outperform other assets. Bank of America Merrill Lynch says policy support, reasonable valuations, and diminishing tail risks will all help to make equities the best performing asset class in 2013. Franklin adds that the shift back towards equities from bonds will take place as economic recovery gains pace, and the prospect of higher interest rates grows.
In its 2013 outlook, BlackRock Investment Institute says “caution” is the watchword, and that fixed income investors especially must look out. BlackRock favours emerging market debt and, in Europe, the investment management group prefers Italian and Spanish bonds over the debt of weaker core countries.
When looking at commodities, Bank of America thinks 2013 might be the year gold rises to $2000 per troy ounce, given its use as a hedge against macro and inflation risks in light of policy easing by the Fed and the European Central Bank. Franklin takes a slightly less optimistic line. There are signs that the 13 year gold advance may be running out of steam, as investors choose to shift to equities.
Personally, I predict markets will go up a bit in 2013, and then down a bit, and then up a bit, etc. Because they always do.
Louisa Bojesen is anchor of European Closing Bell on CNBC.