2013: Stock markets at highs but can they do it again next year?

Stocks Many share indexes around the world are at record highs. Will this continue next year?

Related Stories

Well, it all seems fine and dandy when you look at the numbers: the Dow Jones Industrial Average up 22%, the S&P 500 gained 25% and the Nasdaq up 33%.

In Europe, the FTSE was up 10% and the Dax 22% higher. Even Greece rose 27%.

And just take a look at Japan: a 58% rise in the Nikkei. From the major share indexes, it looks like we can draw a line under the global financial crisis and say it started in 2008 and ended in 2013. Five bad years we can say goodbye to.

Well, maybe.

Japan and Europe

Let's start with that rise in the Nikkei. Take a closer look. In dollar terms, the stock market rise was less than half the local currency rise.

The reason was, in short, Abenomics, the economic policies of Shinzo Abe, the prime minister of Japan, in power now for a year and responsible for the biggest quantitative easing (QE) programme in the world.

Dow Jones Industrial Average

Last Updated at 29 Aug 2014, 16:08 ET Dow Jones twelve month chart
value change %
17098.45 +

Top winner and loser

Microsoft Corp.

45.43 +

United Technologies Corp.

107.98 -

It has slashed the value of the yen against the dollar by a fifth and flooded the economy with cheap money. The result has been a boom for the stock market, specifically exporting stocks such as Mazda, Softbank and Fuji Heavy Industries, all of them up between 170-200% in yen terms.

But according to Jane Foley, senior foreign exchange strategist at Rabobank, "There is still a massive battle ahead and the rises we are seeing in consumption may not stay."

In contrast, the strong currency of the year has been the euro, which "has been surprisingly resilient".

She says: "The eurozone has moved from crisis to a politically cohesive response and has also created a massive current account surplus, generated largely by Germany. All that has strengthened the euro. At the beginning of the year most analysts thought the dollar/euro rate would be around 1.27. Today it's closer to 1.37."

So why has the euro been so resilient?

"There was one big problem," says Holger Schmieding, the chief economist at Berenberg Bank. "There was no lender of last resort, and so a small problem like Greece spread to the whole eurozone.

"Ever since the European Central Bank has established itself as a lender of last resort, everything has gone right. Spain is growing, Germany is growing, Ireland and Portugal are growing."

And their stock markets reflect that. A 30% rise in Ireland's main index, a 17% rise in Spain's Ibex, and 13% for Portugal.

British optimism

Start Quote

Everyone appears to think everything in the garden is rosy, and I am troubled by that consensus”

End Quote Nick Beecroft Saxo Bank

As for the UK, by the fourth quarter it suddenly became obvious that the economy was recovering faster than anyone imagined.

Most analysts are now forecasting that the UK will be the fastest-growing economy in western Europe in 2014, though its budget deficit will remain the second highest in the G20.

Bank of England governor Mark Carney is being as ambivalent about the tightening of monetary policy as Ben Bernanke over in the US. But the market response to the UK's economic good fortune has been muted.

There is a growing feeling that much of the good news has been priced into the market, and further gains will require a great deal more good news.

Ben Bernanke The outgoing Fed chairman, Ben Bernanke, has started to wind down flooding the economy with money

And so to the winding down of QE in the US.

Tapering arrives

Anyone who has been following this will be familiar with the topsy-turvy world of "tapering" - the better the economic news, the more likely the Fed will rapidly cut its $85bn (£52bn) monthly support for the economy, the more disheartened investors become. So conversely, the worse the economic news (within limits) the happier they feel.

Start Quote

What on earth was there that was similar about Brazil, Russia, India and China?”

End Quote Justin Urquhart-Stewart Seven Investment Management

Now tapering is about to start, stocks appear sanguine with the whole concept of a $10bn reduction every month. But Nick Beecroft, senior markets consultant at Saxo Bank, is worried "it's too easy to be sanguine about it all".

"Everyone appears to think everything in the garden is rosy, and I am troubled by that consensus," he says.

He points to what he calls "icebergs" - things that could go wrong in the coming year - such as a resurgence of the eurozone problems, a conflagration in the North China Sea, a too-hot-to-control economy powered by inflation and a dip in Chinese growth. All of these he puts at a 15-20% chance of happening.

Wither Brics?

The China growth story has taken something of a knock over the last year, but appears to be back on track with GDP at around 7%. But not everyone is convinced.

Li Keqiang Even the Chinese premier is said to be sceptical of its growth statistics

Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, wrote a powerful article for the Wall Street Journal in October questioning the accuracy of the economic figures and suggesting that Chinese Premier Li Keqiang himself considered the public figures "man-made" and actually used more eclectic measures of growth, dubbed the LKQ Index.

Justin Urquhart-Stewart, co-founder and director of Seven Investment Management, says the country is going to be very volatile as it changes from an export economy to a service economy.

"We all know that service is not a byword in China," he says. "The economy will continue to grow but the graph will not rise at that relentless 45% angle that we are used to."

Mr Urquhart-Stewart also points out that 2013 really saw the death of the Bric countries as an investment concept.

"What on earth was there that was similar about Brazil, Russia, India and China? They were put together under this umbrella by Goldman Sachs to help them sell their funds.

"On 22 May, the first indications came that the Fed would reduce its support for the US economy and it showed all those pompous Western asset managers that there were many different classes of emerging markets as funds flew out of them.

"Russia, India, Indonesia and Brazil fell like a stone. And then by the end of the year we see the ones that have done well - like South Korea, Mexico and some African economies, which are all looking good."

So currencies apart, returns have been good for 2013, but while few see a collapse of confidence, markets may struggle to find news that inspires them on to greater heights.

We're only just out of the worst recession since the 1930s, and many of the biggest markets are at all-time highs. That alone should be reason to be cautious.

More on This Story

Related Stories

More Business stories


BBC Business Live

    Via Twitter Jamie McGeever, chief markets correspondent for Europe, Reuters

    tweets: "Italian manufacturing sector contracts for first time in over a year. PMI falls to 49.8 in Aug from 51.9 in July, expected 50.8."


    Perform Group, which owns the Omnisport sport news agency, rose 26% to 256.7 pence in London after Access Industries Group said it would buy the company. It already owns 42.5%.


    South Korean giant Samsung Group is to become even bigger, Bloomberg reports, after merging its shipbuilding and engineering units. Shares in both firms rose as a result of the announcement.


    Ecuador says its new digital currency will begin circulating in December. The electronic money will be the first backed by a central bank, and will work alongside the country's current currency - the US dollar. The president says it will help poorer people gain access to banking.

    Microsoft China

    The clock is ticking for Microsoft in China. Competition authorities have given the firm 20 days to reply to questions over the compatibility of some of its software, Reuters reports. Microsoft is one of several foreign companies that have come under scrutiny in the country in recent weeks.


    The Financial Times leads with Vladimir Putin's call for talks on "statehood" for south-east Ukraine. The paper calls it a provocative comment, which will heighten fears that Moscow is seeking partition for Ukraine. The Daily Telegraph says David Cameron and Barack Obama are to respond to the Russian president by urging NATO allies to increase defence spending. In a leader article the paper also recommends fresh sanctions.


    Berkeley Group, the home builder, is having its annual meeting today. The firm is "well positioned to continue to invest in the business and deliver returns to shareholders. Earnings this year are anticipated to be in line with current market expectations," chairman Tony Pidgley will say.

    KIER CONTRACT 07:23:

    Kier Group, the builder, says it is the preferred bidder to design and build a new £50m residential tower in London. The company says it will "design and construct 224 luxury apartments arranged in four blocks".

    GOING SOUTH 07:11:
    St Andrews

    The Guardian reports that Scotland's top universities are bracing themselves for a "brain drain" of their most talented scientists if there's a "yes" vote for independence. The paper says senior figures believe Scotland's best known universities would lose access to billions of pounds of funding - the subjects most at risk are said to include advanced computing and genetic research. However a source close to the Scottish government says the concerns are misplaced and research funding will be maintained.

    CUBAN IMPORTS 06:57:

    New rules are coming into force in Cuba, limiting the amount of goods people can take into the country in their luggage. For example, Cubans will be allowed only 10 kilos of detergent rather than 40, 24 bras rather than 48, and just two flat screen televisions. Many Cubans see the new restrictions as throttling one of the few sources of high-quality consumer goods.

    RAC LISTING 06:47: Radio 5 live
    RAC rescue vehicle

    Holly Cook, of Morningstar, was on 5 live too, talking about the car breakdown specialists RAC, who are said to be considering a stock market flotation. How come? It shows "more confidence in the market" and may be seen as a good investment as its business is easily understood, she says.

    FINANCE LITERACY 06:41: Radio 5 live

    Tracey Bleakley adds that the first rule of money management is "knowing the difference between something you need and something you want." Think about that in the lunch queue.

    FINANCE LITERACY 06:35: Radio 5 live

    Tracey Bleakley, chief executive of the Personal Finance Education Group is talking about the government's new plan to provide education on financial planning. "We've all got to talk about it," she says, adding that children could educate their parents. That way people can see through "the marketing" that lots of debt is a good idea.

    TESCO PERFORMANCE 06:30: Radio 5 live

    Tesco is struggling to compete with the likes of Aldi and Lidl because the smaller supermarkets stock fewer lines and focus on keeping prices low. "Tesco are giving people far too many reasons to go elsewhere," Steve Dresser, retail analyst, tells Wake up to Money.

    TESCO'S NEXT MOVE 06:27: BBC Radio 4

    Tesco's new boss, Dave Lewis, starts work today at the beleaguered supermarket chain, and Holly Cook, of the investment site Morningstar, tells Today that his first move may be to slash prices. Tesco, she says, "used to be a value proposition," but is now "not that much cheaper" than its rivals.

    EU REVOLT 06:20:

    In its main front page story, the Independent says David Cameron is facing a damaging new revolt over Europe. It says up to 100 Conservative MPs are planning to defy him by declaring that they'll vote to leave the EU - regardless of what concessions he wins for Britain.

    NETWORK RAIL 06:17: Radio 5 live

    Philip Haigh, railway writer, is still on Wake up to Money. Why is Network Rail in £33bn of debt? It's been spending lots of late, he says. Railway stations, for example, have never looked better. "You just have to look at King's Cross and see what they've done there," he says.

    BORIS TAKES OFF 06:14:

    Boris's comments come as we await news on whether the Airports Commission will put his favoured plan for a Thames estuary airport back onto its shortlist of options. Incidentally, Mr Johnson is seeking nomination as the Conservative parliamentary candidate in Uxbridge and South Ruislip - where Heathrow expansion is widely opposed.

    BORIS TAKES OFF 06:07:
    Plane over Heathrow

    The Telegraph carries a piece by the Mayor of London, Boris Johnson, in which he warns that expanding Heathrow, and ditching his plan for a new airport in the Thames estuary, would be a "disaster". But Mr Johnson, who has previously called for the closure of Heathrow, now suggests it could remain open as a secondary airport.

    NETWORK RAIL 06:03: Radio 5 live

    Philip Haigh, railway writer, is on Wake up to Money, talking about Network Rail's move to the government's balance sheet. On the one hand, he says, it means the state-owned company can borrow more cheaply from the government, but the government will also be able to appoint directors and intervene in things like executive pay.

    06:01: Howard Mustoe Business reporter

    Morning! Get in touch via email bizlivepage@bbc.co.uk or via Twitter @BBCBusiness

    06:00: Joe Miller Business Reporter

    Good morning. It's a good day for current account holders - particularly those who have experienced the maddening misfortune of being charged for going overdrawn by a few pennies. Banks will now have to give customers until 2pm to cover funds before slapping on a levy. Stay tuned for reaction to that news, and the rest of the business headlines.



  • Alana Saarinen at pianoMum, Dad and Mum

    The girl with three biological parents

  • Polish and British flags alongside British roadsideWar debt

    Does the UK still feel a sense of obligation towards Poles?

  • Islamic State fighters parade in Raqqa, Syria (30 June 2014)Who backs IS?

    Where Islamic State finds support to become a formidable force

  • Bride and groom-to-be photographed underwaterWetted bliss

    Chinese couples told to smile, but please hold your breath

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.