4th Quarter of 2014

Last quarter of 2014 has seen volatility coming back after its artificially low levels imposed through central banks’ interventions. Still global equities delivered positive returns. A leader again was the US market, which out of all major developed markets has shown the largest gains. Equities in general were supported by expectations that the lower oil price would boost the consumer-led recovery. Eurozone equities stayed flat for the quarter as Europe struggled with its macroeconomic problems. Asian ex. Japan markets also finished the last quarter flat, as December returns offset previous months’ upward trend. Japanese equity market gained as a result of monetary policy stimulus. Emerging markets had negative returns throughout the period, and Russia was particularly worrying investors.

A summary of world markets returns for the quarter four 2014 and for the whole of 2014 respectively: MSCI World + 3.3% and +9.8%; MSCI Europe +0.0% and +4.7%; S&P 500 +4.9% and +13.7%; MSCI UK -0.4% and +0.5%; MSCI Japan +6.7% and +9.5%; MSCI Emerging Markets IMI -0.4% and +5.3%; Barclays Global Aggregate -1.0 % and +0.6%.

What can we expect going into 2015? Policy seems to be a key theme. Monetary policy should largely stay as expected i.e. Fed and Bank of England may raise rates, whilst central banks in Europe, China and Japan are ramping up stimulus. The focus will be on fiscal policies as well. Also, global growth could get a boost from the recent decline in oil prices. 2015 could therefore bring modest returns, but with increased levels of volatility due to divergence in growth rates around the world and geopolitical tensions. In particular, European and Japanese equities look attractive due to cheap valuations and monetary boosters, while US remains a leader in terms of fundamental growth prospects. Emerging market stocks, which lagged performance in the last years, could perform well amid a rising dollar; rarely have they been much less expensive on a relative basis to developed markets. All in all, the situation on markets calls for very active risk management and extending investment horizons through longer holding periods.