The final balance sheet
There is no doubt this year was a sticky one for investors, with markets spooked by the rise of the Islamic State, Vladimir Putin’s Ukrainian territory grab, the deflating euro zone, Chinese slowdown and the Ebola virus.
But there was still money to be made, if you invested in the right place. So who were the winners and losers this year, and what lies in store next year?
The US stock market led the developed world last year, returning 14 per cent over the year, according to MSCI.
Tom Elliott, an international investment strategist at Devere Group, says: “Growing confidence, rising employment and cheap oil price more than offset the end of quantitative easing in October.”
The euro zone struggled again, with markets down 5 per cent over the year as growth dwindled and deflation loomed, although Mr Elliott says it could surprise next year. “This will only happen if EU politicians have an outbreak of common sense, restructure sovereign debt, ease fiscal austerity and enact structural reforms.”
Given EU inertia, it would take a brave investor to bet on that.
Mr Elliott says the United States should continue to outperform next year. “The political landscape is favourable, with pro-business Republicans now controlling Congress. Ultra-low interest rates and low inflation expectations should help.”
The technology giant Apple shrugged off its critics to post a 45 per cent rise in its share price last year.
Dan Dowding, the chief executive at Killik & Co in Dubai, says: “Strong pre-orders for the iPhone 6 helped, as did demand for MacBooks, although iPad sales slipped. Apple has revived, and the future remains promising.”
The UK supermarket Tesco is the world’s third-biggest food retailer, but that didn’t stop it from enduring a rotten year in 2014.
Mr Dowding says: “Falling sales, tougher competition and a black hole in its accounts sank Tesco’s share price by almost half over the year. New boss Dave Lewis is trying to turn things around, but Tesco is still a sell.”
Nike is Mr Dowding’s top stock tip for next year. “As a global sportswear brand leader, with strong product innovation and reputation for quality, it should continue to outpace its rivals.”
Cash and bonds
The year began with analysts warning of a 30-year bond bubble, but once again, it stubbornly refused to burst.
James Thomas, the regional director at Acuma Wealth Management in Dubai, says: “Bond investors held their nerve in 2014. They appreciate the security bonds offer with far higher yields than cash.”
Cash was once king, until it was dethroned by rock-bottom interest rates. Mr Thomas says its crown slipped further this year as interest rates stayed low and monetary policy remained loose.
Mr Thomas says there is little sign that the bond bubble will burst in 2015: “High bond prices and low yields suggest investors are still happy to place their money in bonds. Savers were the big losers in 2014, and that is likely to remain the case in 2015.”
2014 was the year that the UAE achieved emerging market status from MSCI, which had previously upgraded its status from a frontier market.
Tom Elliott at Devere Group says: “The MSCI UAE index is up 17 per cent this year, despite volatility caused by the Arabtec crisis.”
Confidence quickly returned, and the future looks promising. “The region has a high number of start-up companies, a liberal trading environment, large pools of global capital, and an influx of entrepreneurs from Egypt and Syria.”
UAE residential property prices grew more than 50 per cent last year, but the market cooled this year.
Sam Wani, the general manager at the certified mortgage advisers Independent Finance, says UAE developers are struggling to offload their inventory of off-plan stock. “The number of investors looking to make a short-term gain has fallen. Many are also shying away from existing stock because of falling yields.”
Mr Wani says this will be a soft landing rather than a property market crash. “Interest rates are expected to stay low and this should help maintain stable house prices in the UAE.”
India was the clear victor among the major emerging markets this year as China, Russia and Brazil struggled to shrug off their various troubles.
Jan Dehn, the head of research at the emerging markets investment manager Ashmore Group, says: “One year after Morgan Stanley named India one of the ‘Fragile Five’, its stock market grew nearly 40 per cent.”
The election of a dynamic new prime minister, Narendra Modi, helped to restore confidence. “The widely held view that India was in terminal decline was wide of the mark,” Mr Dehn says.
Russia was the year’s clear loser. “The MSCI Russia index is down 31 per cent because of EU and US sanctions over Ukraine crisis and major re-pricing of oil.”
Mr Dehn says Russia now offers considerable value to investors. “It has a low debt ratio, US$430 billion in foreign exchange reserves and cheaper currency. It could rebound strongly in 2015, particularly if the EU eases sanctions.”
The collapse in the oil price from a peak of about $115 a barrel in July to less than $70 was the biggest financial surprise of this year.
The real winners were consumers in the United States and Europe.
Alex Dryden, a global market strategist at JP Morgan Asset Management, says: “Falling petrol prices are effectively a tax break for western consumers, boosting their spending power, and this should help revive their economies.”
The falling oil price is a fiscal disaster for many oil exporters, notably Venezuela, Nigeria and Russia. The Arabian Gulf region is relatively sheltered from the shock, at least for now.
Mr Dryden says there is scope for an oil price rebound next year. “The falling oil price will persuade many oil companies to mothball production, especially high-cost US shale producers, which may reduce supply and eventually push up prices.”
Oil wasn’t the only commodity to suffer in 2014. Iron ore and copper all had a dreadful year as slowing Chinese growth hit demand. Sometimes there are no winners.
It was another tough year for gold bugs, with the metal continuing to decline from its September 2011 peak of $1,920.
Gold was knocked by the rising value of the US dollar and continuing low inflation, and ended the year roughly where it began at about $1,200 an ounce.
Adrian Ash, the head of research at the gold investor index Bullion Vault, says: “New lows in the gold price are unsurprising given the collapse in oil prices and the record highs in US equities.”
The hot money traders have moved on, but Mr Ash says gold could still shine in 2015. “Lower prices have created an opportunity for private investors to buy gold as portfolio insurance against future economic shocks.”
Once again, the global hot spot London led the world in 2014. Liam Bailey, the global head of research at the property specialists Knight Frank, says: “Prime central London is finally slowing, but prices still rose 6.5 per cent in 2014. The wider London market grew 15 per cent as price rises rippled out from the centre.”
London may finally hit the wall in 2015, with a new 12 per cent stamp duty charge on properties over £1.5 million (Dh8.6m) knocking demand, plus the threat of a “mansion tax” if the Labour Party wins the coming general election in May.
Jakarta was a surprise property market winner in 2014, with prices up nearly 30 per cent, while prices in Los Angeles rose more than 15 per cent.
Russia was the big loser, with the once-red hot markets St Petersburg and Moscow falling 8 per cent as sanctions frightened away foreign investors and caused jitters at home.
Mr Bailey says rapidly recovering Ireland could well be the leading market next year, led by Dublin. “There is still substantial scope for growth even after a 24-month recovery. We could be looking at returns of about 10 per cent.”
The US dollar was the currency big hitter this year, up 13 per cent against the euro and 9 per cent against the pound. That is a massive boost to the overseas buying power of UAE expatriates, who are paid in dollar-pegged dirhams.
Kevin Grant at the foreign exchange specialist Moneycorp says: “The US economy is on the road to recovery, and a healthy economy usually means a robust currency.”
Sterling also recovered as the UK economy grew at a surprisingly healthy 3 per cent a year.
The Japanese yen was the big currency loser this year, Mr Grant says. It dropped 18 per cent against the US dollar as the Bank of Japan launched an aggressive stimulus programme in a last-ditch attempt to prevent a third lost decade of zero growth.
Mr Grant says the euro fell 13 per cent against the mighty dollar in 2014. “If the European Central Bank president Mario Draghi finally unleashes QE in 2015, the euro will be the loser again. 2014 looks like another strong year for the dollar.”
Follow The National’s Business section on Twitter
Published: December 26, 2014 04:00 AM