• Home
  • About
  • 151 IMPACT AWARDS
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

Impact Awards –>
  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

A view of markets, risks and fundamentals in 2014

0
  • by James Bevan
  • in James Bevan
  • — 14 Nov, 2013

jb-banner-grey
As we move towards the end of the year, we need to think through what asset markets may offer in 2014 and it looks as if we should experience a period of consolidation for equities, with markets higher on a six to twelve months’ view, and expected to outperform both bonds and cash. Thus, we keep our overweight of equities in place as we do not see sufficient near-term downside risk to allow the tactical weighting to be different from the strategic weighting.

In terms of the risks immediately ahead, some tactical indicators do look extended, and in particular US corporate net buying (calculated as share buybacks plus announced cash acquisitions less IPOs and secondary offerings) has fallen to close to zero. This has been driven by very low announced cash takeovers, above-average new equity issuance and share buybacks having dipped slightly below their norm (which is unusual at this stage of the reporting season). On previous occasions when US corporate net buying fell from 3% of market cap to zero, the correction within the following three months has been around 7%, on average with companies in effect exhibiting the view that shares are expensive.

As for the fundamentals, whilst economies appear to be on an improving trend, global earnings revisions have lagged the shift up in global manufacturing new orders. This is particularly apparent in the US, where earnings momentum did not respond positively to the sharp pick-up in ISM Manufacturing new orders through the third quarter. The 13-week moving average (m.a.) of earnings revisions are marginally stabilising (this tends to be more reliable than the 4-week m.a., which is affected by the timing of the reporting season).

There’s also the worry that the consensus expects the first tapering of Fed asset purchases to be next March (although the survey was struck just prior to the latest FOMC meeting, which proved to be marginally more hawkish than expected), and there has to be a chance that tapering begins as early as January. One issue is that that whilst the Fed may be more dovish than many expect for any given level of growth, US GDP growth may turn out to be stronger than investors now expect in 2014.

In terms of what we can see from the numbers, US GDP growth is currently 1.6% year-on-year, even after fiscal tightening of 2.5% of GDP. Next year, fiscal tightening could be just 0.75% of GDP and as a result, the change in the fiscal stance could add nearly 1½% to US GDP growth. Thus, US GDP growth could end up being closer to 3%-3½% next year. Housing data (the NAHB) are consistent with 1.5m housing starts and housing adding another 2% to GDP growth over the rest of the cycle. Housing affordability on all measures is still attractive, and US house prices on the latest data are up 12.8% year-on-year, the highest annual growth rate since February 2005. In addition, housing inventories are still below their norm, and under half of peak levels.

Bond yields are a factor, but in the US, if anything, the bond market now appears realistic in its estimate of the first rate hike (May 2015), and against this backcloth, the macro economy can surprise positively and surveys (PMIs) are consistent with annual global GDP growth accelerating to 3.7%, compared to 2.7% in Q2 2013. This would put global GDP growth marginally above its 30-year compound annual growth rate of 3½%.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla

Share

You may also like...

  • James Bevan: Inflation pressures and the risks James Bevan: Inflation pressures and the risks 16 Nov, 2016
  • Looking ahead: Investment market prospects for 2019 Looking ahead: Investment market prospects for 2019 21 Jan, 2019
  • The challenges for European banks The challenges for European banks 2 Jul, 2012
  • Safety, risk, T bonds & equities Safety, risk, T bonds & equities 19 Mar, 2012

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 20 hours ago

    Impact Awards: Liverpool’s cafe culture and Warrington’s investment in homes: The CCLA/Room151 Impact Awards showcase  finance teams with a direct impact on their local communities and the environment. This week we spotlight Liverpool City Council’s… dlvr.it/RxJsKb pic.twitter.com/dEYpaz6HP0

    Room151 23 hours ago

    Doing something in #localgov #finance for housing or regeneration? Check out the 'Place Shaping' category room151.co.uk/impact-awards/… sponsored by @31tenConsulting in the CCLA/Room151 Impact Awards. #timetoenter !! pic.twitter.com/dU99vE6Wws

    Room151 2 days ago

    Doing something in #localgov #finance for Adult Social Care & Health? Check out the ASC&H category room151.co.uk/impact-awards/… sponsored by Fundamentum Social Housing REIT in the CCLA/Room151 Impact Awards. #timetoenter !!

    Room151 2 days ago

    Doing something in #localgov #finance for the environment? Check out the 'carbon management' category room151.co.uk/impact-awards/… sponsored by @ACSLLP in the CCLA/Room151 Impact Awards. #timetoenter !!

    Room151 2 days ago

    So what are the seven categories for the CCLA/Room151 Impact Awards? Here they are room151.co.uk/impact-awards/… #localgov #finance #outcomes

    Room151 2 days ago

    Why should LGPS be concerned about rising inflation?: The impact of the coronavirus pandemic, lockdown and wider economic uncertainty created  deflationary pressures which raise important considerations for the Local Government Pension Scheme writes… dlvr.it/RxF7Fs pic.twitter.com/JlcjROBIpz

    Room151 3 days ago

    JOB ALERT: LPFA Finance Director vacancy: London Pensions Fund Authority Finance Director and s151 Officer Competitive salary and benefits The largest Local Government Pension (LGPS) provider in London with around £6.5 billion of assets and 135[...] dlvr.it/RxBdJP

    Room151 3 days ago

    Richard Harbord: Further signs that local government finance is failing: The crisis in Liverpool and a fix for education budgets are further indication that local government finance is in need of a root and branch review. Even for those students[...] dlvr.it/Rx9PSV pic.twitter.com/sAanC2gEyu

    Room151 1 week ago

    Impact Awards: Finance helps launch school meals company and support business during lockdown: The CCLA/Room151 Impact Awards will showcase the way finance teams have a direct impact on their local communities and the environment. This week we spotlight… dlvr.it/RwnlF4 pic.twitter.com/AJhne1MVG4

    Room151 1 week ago

    "This work has made a vital, practical contribution to ensuring people have been supported through the pandemic." #impact #151awards #covid #s151 room151.co.uk/treasury/impac… #impactcasestudies #councilfinancemakesadifference

    Room151 2 weeks ago

    room151.co.uk/impact-awards/ #passiton #localgov #s151 #151awards pic.twitter.com/A0uO0dwBkM

    Room151 2 weeks ago

    Financial pressures loom for 2023 and beyond: Kate Ogden writes the government has addressed most of the short-term Covid-19 financial pressures facing English councils, but problems loom in 2022-23 and the years following. As we enter the[...] dlvr.it/RwfDsz pic.twitter.com/hpv2R09w75

    Room151 2 weeks ago

    Calling all #localgov finance officers and #s151s room151.co.uk/impact-awards/ It's the #151Awards Thanks to the @LGALocalism for helping us get the word out along with all the LA treasury societies. pic.twitter.com/Nkal9BrH1J

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Councils identify £178m of fraud but detection remains ‘patchy’
  • Next story Surrey roads, LAMS relaunch, Building societies, Barnet contract, Scottish LGPS

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.