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John Chatfeild-Roberts Guide to 2014

The actions of central banks will continue to dictate the direction of equity (share) and bond (fixed income) markets in 2014, according to Jupiter’s Chief Investment Officer and Head of the Jupiter Independent Funds Team John Chatfeild-Roberts.

 

by John Chatfeild-Roberts on Jun 03, 2013 at 00:01

Central banks around the world took unprecedented action after the credit crunch hit to support economies, including lowering interest rates to near-zero and embarking on quantitative easing (QE) (money printing).

Now in 2014 the process of unwinding those actions has begun with the decision of the US Federal Reserve (Fed) to gradually reduce the amount of bonds it buys, a process known as ‘tapering’.

John Chatfeild-Roberts believes that it is a process that will play a major role in determining the path that bond and equity markets will take over 2014.

The Fed is only gradually reducing the support it provides to financial markets through QE. Yet John warns that investors should not be complacent about the process.

“Despite the Fed’s decision to cut back marginally on its massive bond-buying programme, it is important to hold in the back of one’s mind that we are in the midst of a huge monetary experiment, the results of which are uncertain. Few, if any, understand the long-term implications of QE,” says John

Companies need to up their game

Uncertainty over QE, however, did not stop many of the world’s stock markets from rising strongly in 2013. John believes that much of that rise was due to investors being willing to pay more for shares in the belief that the earnings companies make, and the dividends they pay, will rise as the economy grows.

But he cautions on how long this process can continue. “This pattern cannot go on forever even if it proved a lucrative driver of returns in 2013. Growth in corporate profits will have to materialise in 2014 on the back of stronger global growth to justify these higher levels of valuation.”

Focus on markets

US: boost from falling raw material, energy costs

The US economy has benefited in recent months from a new capacity to harness cheaper energy. This is a result both of falling energy prices and the new ability to extract natural gas onshore in the US through fracking technology. This drives down the prices companies pay for the raw materials they use.

Added to this the US is benefiting from the fact that wages paid to workers in China are rising. This in turn makes the US a more competitive place to employ workers. John says: “Wage inflation in China has escalated, which combined with the energy advantage is helping US companies become considerably more competitive. As a result, US corporates are in good shape but they need to have the confidence to invest their cash balances, and this is definitely taking quite some time.”

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