In its 2014 global investing outlook report, State Street Global Advisors (SSgA), the asset management business of State Street Corporation, outlines a number of trends expected to define market performance in the next year.
Most important, researchers argue, will be stronger growth in the U.S., along with more modestly positive performance in Europe. Emerging markets are also expected to improve over a rocky 2013 but will be impacted by conflicting forces—a strengthening global economy on the one hand and a strengthening dollar on the other.
Within the Eurozone, the report argues growth is particularly favorable to European peripheral debt. SSgA analysts also expect to see rallies in peripheral stocks and that both small-cap and high-yield vehicles should continue to perform well.
SSgA is positive on the outlook for Spanish and Italian equities, and sees the United Kingdom as the top performer next year despite potential inflationary pressures.
For emerging markets, current bond and equity valuations should offer good upside opportunities for 2014, but analysts warn investors will need to be selective and account for policy makers’ decisions at home and abroad.
Other global themes explored in the report include the “Chinese Dream” initiative to shift that country’s economy away from exports. SSgA experts are cautiously optimistic about the effort but warn risks still persists, calling a 7.5% growth rate for the Chinese economy next year.
The report also predicts China will displace the U.S. as the world’s biggest economy by 2030.
Another notable trend is that, for the first time in years, analysts expect monetary policies will begin to diverge within the global economy. For instance, the U.S. Federal Reserve is expected to begin tapering its stimulus program sometime in 2014, which could in turn signal the beginning of a transition to more normal rates for economies that are performing well, SSgA argues.
That trend, along with economic prospects that appear consistent with tapering, is causing government bonds to lose the safe-haven appeal that served them well during 2011 and 2012. The broad lack of value in sovereign debt extends to other fixed income segments as well, SSgA analysts say, further narrowing the options for yield-seeking investors.
SSgA favors short biased strategies, managed futures, real estate and cash as diversifiers with stable low-correlations for 2014.