Stock Markets Outlook for 2014

While it may be difficult to repeat the excellent returns recorded so far this year, global equity markets are predicted to deliver at least double-digit returns in 2014

Andy Brunner 12 December, 2013 | 12:59PM

After two strong years for the MSCI AC World index, what are the prospects of another decent year in 2014? 

While it may be difficult to repeat the excellent returns recorded so far this year, equity markets are predicted to deliver at least double-digit returns in 2014. This view is predicated on strong US-led global growth (i.e. the US to attain sustainable expansion), still highly accommodative global monetary policy, short rates in the main economies to remain unchanged and bond yields rising broadly in line with consensus forecasts.

As the business cycle is now around mid point, confidence is growing and uncertainty waning and, there is little threat from rising inflation, given the degree of economic slack in most countries. This macro background should generate a decent upturn and acceleration in corporate earnings growth. An earnings recovery is vital to prospective equity returns as there is now far less scope for further revaluation-led gains.

In general, it is fair to say that from a historical context, equities are no longer cheaply rated and by some measures are fairly fully valued, although they remain extremely cheap relative to bonds. Indeed, it may not necessarily be their intrinsic value that drives money into equities next year but the prospect of another year of either extremely low returns or even further losses from bonds and negative real returns on cash.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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