What to expect in the investment world in 2014?
2014 is an important year for investing. Why? In a “tapering” environment, US may slow down their money printing machine. This is like your bank cutting your credit card limit. It may not affect your day to day living and spending. But for sure, it is discouraging you to spend. At the same time, your deposit in the bank account is still going to get hardly any interest. Same case if you invest in government bonds, not paying you very much.
Corporate bonds are a complex investment universe and looking at iShares plc Markit iBoxx GBP Corporate Bond Exchange Traded Fund (ETF), it is roughly down 1% year to date and distributed 3.74% yield or dividend to investors. Such performance could continue in 2014 for the Corporate Bond sector.
Equity market has a fair chance to continue its overall strong performance into 1H 2014. This is mainly due to institutional money moving from bonds to other asset classes. UK overall stock market, if we use FTSE 100 Index as reference, has gone up 13.7% year to date as of 13 December, 2013. This is great performance and one of the tracking ETFs on FTSE100 is iShares plc FTSE 100. Top exposures are HSBC, Vodafone, BP, GlaxoSmithKline, Royal Dutch Shell, British American Tobacco, Diageo, AstraZeneca and Barclays. Buying such ETF has the economics of holding a basket of the 100 stocks in the FTSE100 index. Many of these stocks, such as HSBC and Vodafone are global stocks. Their share prices are subject to global economy as well as UK economy. As you can see, these global stocks cover many different industries, so the good thing is that the fund performance does not affect by a specific industry going through a down turn, say, banking industry. The flip side is that if a specific industry like eCommerce and internet does very well, the ETF may only have some exposure in such business.
The technology sector had an amazing year in 2013 and Nasdaq Composite Index went up 34.2% year to date as of 13 December. Facebook, Twitter and Tesla are changing the world and creating wealth for their shareholders. There is plenty of hot money from venture capitals going into the technology sector and banking lending is not the prime source of funding. So the technology business sector should be relatively shielded from US tapering its quantitative easing. For those interested in investing in technology companies, “QQQ” is the stock code for the US listed PowerShares ETF on Nasdaq 100. The technology sector is driving an industrial revolution from social network to shale gas exploration. This could be a core part of any aggressive equity investors.
For any equity investor, perhaps US equity is a must have in their portfolio. US S&P 500 index has gone up 27.1% in USD year to date as of 13 December. To gain exposure on the very board equity story, S&P 500 is a good index to hold. Investors can consider iShares plc S&P 500 ETF. Top exposures are Apple, Exxon Mobil Corp, Google， Microsoft, General Electric, Johnson & Johnson, Clevron, Proter & Gamble, JP Morgan Chase, Wells Fargo. It is definitely more technology weighted than FTSE100.
How about the people next door? Eurostoxx 50 index is up 15.3% in EUR for the year as of 13 December. While the Euro crisis seems to be less pressing from the recent economic data, the riots in Kiev shows that the Euro zone is still an action / adventure movie. As the Eurostoxx 50 Index rally has probably reflected investors’ appetite from fear to hope, further upside could be limited in 1H 2014.
This year star market is Japan with Nikkei 225 index went up 50.5% as of 13 December. There is determination to depreciate the currency to simulate export and inflation. Yes, the Japanese government wants to see inflation. Not really considerate for the retirees but the Prime Minister Shinzo Abe seems willing to do anything to get Japan out of lost decades. For GBP based investors, making gain in JPY based equity fund with JPY depreciating against GBP does not sound like a sweet deal. Perhaps there are better trains to catch.
Emerging Markets scared a lot of investors away in June with correction in both currencies and stock markets. Looking at iShares plc MSCI Emerging Markets ETF, major exposures are Samsung Electronics, Taiwan Semiconductor, China Mobile, Tencent, China Construction Bank, Industrial and Commercial Bank of China, OAO Gazprom, America Movil SA, Naspers, and CNOOC. One name that most investors may not know so well is Naspers. It is an eCommerce and media platforms in more than 133 countries. Naspers is listed in Johannesburg Stock Exchange and it holds 34% of Tencent. Tencent is the online giant in China that has portal, online games and eCommerce. Tencent’s current killer app is “WeChat” which is competing against Whatsapp and Korean LINE. Technology, banking and energy are major sectors to drive MSCI Emerging Markets performance.
