The Year of the Bull: A Review of 2013

By Emma Black (Investment Manager at Tier One Capital) 31 December 2013 

No one could have imagined that 2013 would have seen world indexes setting record highs with equity markets ending at their best levels this week for six years. Prolonged loose monetary policies from central banks coupled with improving economic data around the globe has created a bullish equity climate that has generated gains of 29% for the S&P 500 US benchmark, 56.7% for the Nikkei 225 in Japan, 26% in the German DAX index and 14.4% for the FTSE 100 here in the UK. Moreover, continued recovery in Europe has generated gains in Ireland of 33.8%, the French CAC 40 index has rose 18% while Spain’s IBEX has grown by more than 20%. It certainly appears as if financial markets have taken their medicine providing stellar returns as a result for investors at the close of the year.

The FTSE 100 started strongly before taking a slight wobble in the spring that wiped out early gains. From the second-half of the year onwards, speculation over US tapering caused continued uncertainty but the slow-pace of this tapering announced this month has sparked a late rally in equity markets around the world.

On a sector basis, resource-related firms such as BHP Billiton, Anglo American and Antofagasta pulled the index down with losses of -12.2%, -30.3% and -37.8% respectively, particularly given their respective weightings in the FTSE 100 index (2.26% for BHP Billiton, 0.99% in Anglo American and 0.17% in Antofagasta as of 31 December 2013). Moreover, emerging markets continued to perform poorly and those multinational companies in the index with higher exposure resultantly underperformed the wider index. Standard Chartered fell to 1360p (a loss of -13.6%) and HSBC to 662.4p (a loss of 2.4%) over the course of the year due to their significant operations in the emerging world.

Despite the losses, there have been many sectors that have soared over the course of the year. Recovery in the UK domestically strengthened advertising budgets helping ITV to close the year at 194p, reflecting a gain of 84.4%. The mending housing market has earned homebuilder Persimmon gains of 54.9% while construction merchant Travis Perkins closed the year at 1872p (a 72.1% rise). Our investors also earned significant returns from the airline industry, with returns of 100.7% for easyJet which closed at 1536p and 117.2% for BA’s parent International Airlines Group which ended the year at 401.4p, mainly driven by a revival of its Spanish subsidiary Iberia.

As a result of the falls in the Basic Resources sector, the FTSE 100 has underperformed its peers in the US and across in Europe. All ten of the main industries in the S&P 500 rose in 2013, driven mainly by a 41% gain in consumer-discretionary companies. Netflix Inc rose 298% in 2013, reflecting the biggest winner for the index, while on the downside, Newmont Mining Corp fell 50% becoming the index’s biggest loser. Over in Europe, the German DAX index has led gains with a 25% rise over the year. Similar to the US and the UK, Europe was pulled down by negative performance from the Mining sector. At the individual stock level, pharmaceutical company Sanofi SA in France gained 1.1% for the CAC 40 offering support for those predicting a long-term positive trend in the sector.

2013 has also seen a marked rise across the board in corporate activity. The number of companies listing picked up throughout the year with the most prominent being Royal Mail that listed onto the London Stock Exchange in October, causing great controversy following suggestions that the firm was grossly underpriced. Moreover, M&A activity picked up with large deals such as Dell’s privatisation for $20bn by Michael Dell and Silver Lake Partners, as well as Warren Buffett’s Berkshire Hathaway that, together with 3G Capital Partners, bought Heinz for $27bn.

The consensus moving forward is that this bull market will continue to gather momentum throughout 2014. Analysts at Goldman Sachs have announced a year-end target for the index of 7,500 while Citigroup have indicated this could go as high as 8,000 points suggesting a continuation of this bull market into 2014.

If you would like to discuss how Tier One Capital can help you to manage your wealth in the coming year and learn more about our in-house views, please contact a member of our team to arrange a meeting on +44(0)191 222 0099.