Predicting the markets in 2014

The New Year brings resolutions and in the world of financial journalism it brings stories that try to anticipate what the year holds for global financial markets.

Michael J. de la Merced of the New York Times had this story about the market for initial public offerings continuing to be strong after a great 2013:

The next 12 months may not prove as rich for initial public offerings as the last year. But to Wall Street bankers, 2014 still promises an abundance of opportunity.

And that could include what may be one of the biggest market debuts in years: that of Alibaba, the Chinese Internet behemoth.

Even as global merger activity turned in another lackluster performance, the business of taking companies public soared. The amount raised by I.P.O.’s in the United States last year jumped 40 percent over 2012, to $59.3 billion, according to data from Thomson Reuters.

Overall activity in equity capital markets banking totaled nearly $797 billion for the year, up 27 percent and one of the best years in recent memory. Fees for bankers in the field rose 34 percent from the previous year, to $17.9 billion, in what Thomson Reuters described as the highest level in three years.

The FTSE Renaissance Global I.P.O. Index, which tracks the returns of newly public shares, returned 31.7 percent last year through Dec. 17, outstripping the MSCI All Country World Index’s 15.4 percent.

Advisers are quick to caution that such a run — one with a number of big stock market debuts, like those of Hilton Worldwide, the animal health company Zoetis and, of course, Twitter — will be hard to duplicate. But as long as the economy holds up, so will the stock markets, prompting private companies to look to share sales to raise money.

According to Nicole Hong of the Wall Street Journal, the dollar is also kicking off 2014 with a rally:

The dollar soared on the first trading day of 2014, as expectations of a resurgent U.S. economy lured investors from around the world.

The euro was the most high-profile victim of the greenback’s surge. Its 0.6% drop, to $1.3670, was the biggest one-day percentage decline against the dollar since November.

Emerging markets’ currencies also came under pressure, as investors took a dim view of their economic growth prospects. The Turkish lira sank to a record low against the dollar, partly because of political problems in the country, while the South African rand tumbled to its weakest level against the U.S. currency since November 2008. The Brazilian real fell to a four-month low.

Driving the greenback’s renewed strength is anticipation that U.S. economic growth this year will outpace the recovery in Europe and other regions, which would boost the dollar’s value by attracting more cash to U.S. shores. As the economy heals, the Federal Reserve is expected to continue reducing, or “tapering,” its postcrisis stimulus program, a move that also helps the dollar because it slows the injection of new money into the financial system.

CNN Money’s Virginia Harrison recommended buying European and Japanese stocks instead of emerging markets:

Flush with liquidity, markets around the world surged last year, breaking records and pumping out healthy returns. So is there anything left for investors in 2014?

The flow of cheap money will lessen, say experts. But don’t despair.

While that will stir up risk in some regions, it will also present opportunities. At the same time, corporate earnings will take center stage as stock markets are weaned off massive amounts of stimulus.

“Prospects are much more dependent upon near-term earnings growth,” said John Wyn-Evans, head of investment strategy at Investec Wealth & Investment.

Strategists say developed markets hold better return potential than their emerging peers, as the U.S. Federal Reserve pulls back its support. Slowing growth in China is another challenge that could sap confidence and hurt equities in the year ahead.

But before you get too excited about 2014, Marc Jones of Reuters offers a reality check:

World share markets made a groggy start to 2014 on Thursday, with investors using some disappointing Chinese manufacturing data as a reason to cash in on some of last year’s gains.

After enjoying their best run in 15 years last year, U.S. shares were expected to edge lower when trading begins. Further gains depend on stronger growth this year, and investors were looking to U.S. jobless claims and updated December PMI figures to gauge the improvement in the world’s largest economy.

Manufacturing data from China overnight and on Wednesday proved disappointing. Equivalent data that showed euro zone manufacturing running at its fastest rate since mid-2011 were not enough to lift shares.

The pan-European FTSEurofirst 300 was down 0.3 percent before the U.S. open. It had started the day at a 5 1/2- year high. Earlier declines in Asia had left MSCI’s 45-country share index down 0.5 percent.

“We think it is a temporary blip in China, but that and also perhaps the data showing the contraction in Singapore’s economy earlier, maybe gave the market a slight scare,” said ABN Amro economist Aline Schuiling.

So, like anything, it’s going to be hard to predict. But if the overall global economy can continue to show some strength, there should be bright spots for smart investors.