A reasonable level of optimism for 2013 seems to be prevailing.
“After profitable 2012, we expect another positive year for global equities driven by the two main factors for equity performance: earnings and valuations,” the investment management arm of insurer Legal & General said in its briefing note this month.
Legal & General Investment Management (LGIM), the biggest investor in UK equities, forecast the FTSE 100 may rise to 6,400 by the end of 2013. This is about eight percent up from its current level.
The UK, on course to register a slight economic contraction in 2012, is set to see a return to economic growth in 2013, though this is likely to be moderate. Typical forecasts are for GDP growth of one percent in 2013. However the FTSE 100’s fortunes are increasingly tied to events beyond Britain’s shores.“With 58 percent of FTSE 100 revenues generated outside Europe and the UK, what matters more is global growth,” said investment bank UBS in a note.
LGIM and UBS said that several central banks around the world continue their policies of decreased interest rates and quantitative easing programmes. The Bank of England is likely to keep rates at a record level of 0.5 percent.However, the overall effect of the QE and reduced interest rates that has already taken place, and is likely to continue. Analysts say this encourages investors to go into unstable assets such as equities.
Share prices, though they have risen from the six-year minimised of March 2009 are still looking very attractive with price-earnings ratios leaving room for further gains, say analysts. UBS forecasts the FTSE 100 may set to rise to 6,300 by the end of 2013, suggesting a solid and exciting advance. Although there may be stronger gains in overseas shares, investors might benefit from going into London-listed equities with exposure to certain foreign markets.
Most analysts say the eurozone’s politicians are aiming to do whatever it takes to prevent a fissure of the currency union, yet that the eurozone economy may set to contract in 2013.
Both LGIM and UBS say emerging markets, such as those in Asia, might provide interesting prospects. UBS says insurer Prudential and banking group Standard Chartered, both active in emerging markets may be productive bets. It also points to the US, the world’s largest economy, as offering some upside: it has enjoyed an upward trend in jobs creation in 2012. Although it may have to take measures to address its budget deficit, most analysts are optimistic that politicians look assured to agree to a plan.
UBS believes UK companies with exposure to the US economy might perform strongly in 2013. It has highlighted several FTSE 100 stocks it thinks investors should consider: defence company BAE Systems, cruise operator Carnival, publisher Reed Elsevier and drug makers Shire Pharmaceuticals and AstraZeneca.
HSBC, which also forecasts modest gains for equities overall in 2013, endorses UBS’ upbeat view on Carnival. Separately, it aims to see better times ahead for some FTSE 100 retailers.
Supermarket giant Tesco had a challenging time in 2012, however HSBC says Tesco may benefit from having invested in more staff and adds: “We believe management is in much better control of the group’s margins than investors are concerned of.
Overall, the City of London’s financial experts are optimistic that 2013 might be another productive year for the markets, as companies grow their profits, and central banks continue to provide monetary stimulus.
How might decreased interest rates, benefit the eurozone in 2014?