December saw markets finish the year on a positive note with equities increasing further to record another stellar year. Markets had taken a step back up to mid month when finally the Federal Reserve announced the beginning of much anticipated tapering. Markets took comfort from this announcement and rallied to the year end.

The MSCI World Equity Index increased by 0.9% over the month while bonds decreased with the Merrill Lynch over-5-year Euro Govt. Bond Index down 0.9%. From a regional perspective US equities fared best, up by 1.3% on the month. Emerging market equities lagged considerably, returning -2.6%.

Developed World markets returned 21.2%, so 2013 has been a good year for investors. The regional disparities in equity markets for December were also reflected in the full year performance with the major regional blocks (US/Japan/Eurozone) generating returns in a 20% to 25% range while Emerging Markets returned a very poor -6.8% in 2013 (all returns in euros).

December saw some major moves on the currency markets with the Euro up by 3.9% against the Yen and 1.2% versus the US$. Commodities were flat for the month. The Fed’s announcement of the imposition of tapering was welcomed as the level of tapering (reduction in monthly buying of bonds from $85m to $75m) was marginal.

Elsewhere, economic data released in the month was generally positive for the US and the UK. Indeed the positive momentum in the UK economy seems to have taken analysts by surprise. Positive housebuilding data and PMI survey results, increasing industrial production figures and retail sales data and falling unemployment were all welcomed by the market.

Similarly, US unemployment data published in December saw the unemployment rate hit a 5 year low and PMI survey results were also positive. Data from China and the eurozone were mixed, with French and Italian data on the weak side albeit PMI data for the eurozone as a whole reflected slightly improved sentiment.

Source – Kleinworth Benson Investors.