My six big predictions for 2014

There are plenty of things to worry about in 2014. But there are plenty of opportunities too, says Ed Bowsher. Here, he makes six calls for the year to come.

Earlier this week my colleague, Dominic Frisby, said he would give some predictions for 2014 in January.

Being a cheeky soul, I've decided to beat him to the punch and put out my predictions before him. Sorry Dominic

My overall view is that 2014 will probably be a reasonable year for investors and there should be some decent money-making opportunities. I've highlighted some of my favourites below.

Advertisement - Article continues below

However, I'm not an all-out bull. Sure, there are always lots of thing to worry about. But with the valuation of the US the market that most others take their cue from so vulnerable to nasty surprises, I'm not going to pile in and invest every last penny in stocks and shares.

That said, here are my six big calls for 2014

1. A good year for Japan

This is hardly a controversial stance in the MoneyWeek office, but I think Japan's Nikkei index will rise by at least 10% next year, taking it to well over 17,000. I wouldn't be surprised if the rise was actually much larger.

Advertisement - Article continues below

Valuations are cheap and policymakers are clearly determined to do whatever it takes to get the economy moving. That inevitably means massive money-printing, which can only be good for the stock market. And as John Stepek pointed out yesterday, there's still a surprising amount of scepticism' among investors about the Japanese bull story.

Advertisement - Article continues below

If anything, the Japanese themselves are even more sceptical than foreign investors. Domestic investors have stuck with government bonds since Abenomics' began, but if the economy continues to grow, some of those investors will have to capitulate and switch into equities.

And that's when share prices could really start to motor.

The only downside for UK investors is that the yen may well fall further at the same time, so you may want to hedge your exposure here. There are plenty of funds that hedge yen exposure, and I suspect more will become available as the Japan story grows legs.

2. Bank of England base rate will rise in 2014

This one's a bit more controversial. The current consensus in the market is that the base rate will finally rise from 0.5% in mid-2015, but I think it will happen earlier probably in the last three months of 2014.

This week's encouraging unemployment figures suggest that the British economy is finally picking up real steam. If that's indeed the case, inflation will almost certainly rise sooner or later too.

Advertisement - Article continues below

Granted, inflation has just fallen to a four-year low, but the UK economy always seems especially susceptible to inflation and I'm pretty sure that it will revert to type before the end of next year.

Advertisement - Article continues below

I'm not suggesting that prices will soar. But they'll move up just enough to make Mark Carney nervous. And that means we'll have a 0.75% base rate by Christmas.

3. Inflation will fall in the eurozone

Even although we'll probably see a modest pick-up in UK inflation next year, it'll be a different story in the eurozone. I expect the eurozone inflation rate to slow further, prompting increasing concern about the prospect of deflation.

That could force European Central Bank (ECB) boss, Mario Draghi, to launch a more aggressive form of monetary stimulus. So far he's held back from full-blown quantitative easing (QE), but now that the German election is out of the way, QE or something similar looks like an increasingly feasible option.

Advertisement - Article continues below

In other words, the ECB will print plenty of euros and buy government bonds with long and short durations. That means you can probably still make money in eurozone shares this year.

4. Tesco will have another bad year

Tesco's share price is down 16% since the summer. But don't expect a recovery in 2014. This is a company with serious problems. It's losing business at the bottom end of the market to Aldi and Lidl, while it struggles to compete with Waitrose at the top end of the market.

What's more, large out-of-town hypermarkets are no longer the asset that they once were. In fact, we may even see them as white elephants before too long. So if you want to invest in retail, go for Next (LSE: NXT). It has a management team that keeps on getting it right, unlike Tesco.

5. The BJP will win the Indian election

The opposition BJP will win the upcoming Indian election. That should mean renewed economic reform and a resurgent stock market. India is hardly cheap at the moment, given its woes over the past year, but if you're holding on to it, stay invested.

6. Ed Miliband will sack Ed Balls

I can't resist one purely political prediction. I reckon Ed Miliband will move Ed Balls from the Shadow Chancellor job next year. We know that Miliband is a pretty ruthless individual he knifed his own brother after all and Balls is now clearly a liability.

Advertisement - Article continues below
Advertisement - Article continues below

Shadow Home Secretary, Yvette Cooper, would be an excellent replacement in many ways, but she probably won't want to take her husband's old job. So that means either Alistair Darling or Chuka Ummuna will get the job.

The big worries

I said at the beginning of this article that I'm not an all-out bull. Obviously lots of different things can go wrong, but right now there are three issues that make me especially nervous.

Firstly, I worry about how the US would react to a more serious taper than we've seen so far. Given Janet Yellen's apparently relaxed attitude towards inflation, I can't see the Fed getting a lot more aggressive, but never say never.

Secondly, I'm concerned by the fact that European banks still haven't really been cleaned up' to the extent that has happened in the US. If the tangled politics of Europe get in the way of dealing with this problem, it could potentially lead to another flare up of the eurozone crisis.

And finally, when there's so much debt across the world, and vast amounts of printed' money sloshing around, you just can't be an unreserved optimist. When markets remain this sensitive to the actions of central banks, you can't take anything for granted.

Still, I'll try to hold my nerve - and hopefully make some decent profits from Japan.

Our recommended articles for today

The 23 investments our experts are tipping now

SUSBCRIBERS ONLYWhat will happen as the Fed turns off the money taps? John Stepek asks our Roundtable of experts for their views and finds out what they're buying now.

Trust the new industry

Cloud computing is an industry that's based on trust. And it's expanded hugely in recent years. David Thornton looks at one small-cap datacentre operator aiming to profit.




Tesco should keep its Asian assets

The £7bn that Tesco could get for its Tesco Lotus business in Asia looks enticing. But holding on to it would be smarter, says Matthew Lynn.
15 Dec 2019

Tesco cashes out of the mortgage business

Tesco Bank has left the mortgage market by selling its £3.7bn loan book. Its 23,000 customers will be moved to the Halifax, a subsidiary of Lloyds.
5 Sep 2019
Global Economy

The charts that matter: Tesla triumphs

As Tesla becomes the world's most valuable car-maker by market capitalisation, John Stepek looks at how that affects the charts that matter most to th…
4 Jul 2020

Will inflation return – or is “Japanification” the real threat?

SPONSORED CONTENT – Should we actually be concerned about deflation in the wake of Covid-19?
3 Jul 2020

Most Popular


House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020

How can markets hit new record highs when the economy is in such a mess?

Despite the world being in the midst of a global pandemic, America's Nasdaq stock index just hit an all-time high. And it's not the only index on a bu…
3 Jul 2020