Will gold be 2014’s comeback kid?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gold is getting shunned after its miserable 2013 performance, but some analysts are starting to see glimmers of a recovery in the coming year.

It`s a bold call for a nearly universally hated asset. Gold lost about 28 percent last year, its worst decline in more than three decades.

(Read more: It`s past time to short gold: Dennis Gartman )

“Gold has come down because everybody piled in on it for 12 years in a row and (I`m) sure some people used leverage and it was due for a very severe correction,” said Axel Merk, chief investment officer at Merk Investments, which has around USD 450 million under management.

But he added, “I like gold medium term because there`s too much debt in the world,” citing expectations that despite the Federal Reserve`s move to begin tapering its asset purchases, monetary policy is set to remain easy. Concerns about inflation generally push gold prices higher.

“We will have heavy-handed policy making throughout the world. We will continue to have negative real interest rates. We cannot afford positive real interest rates,” he told CNBC. “With record low interest rates, you cannot price risks; you cannot go back to a normal environment.”

In addition, while a strong US dollar (New York Board of Trade (Futures): =USD) usually weighs on gold, the greenback hasn`t been rising across the board, he noted, with the dollar actually falling against the euro.

“The dollar is up versus the yen (Exchange: JPYUSD=) where things are worse,” he noted.

(Read more: The case for ditching stocks and buying gold in 2014 )

He expects gold can rise to around $1,350 an ounce from its current level around $1,228.

Merk isn`t alone in expecting a gold recovery.

“We believe gold buyers will return,” Coutts said in a note.

“The fundamental reasons for holding gold have not changed,” it said, citing the use of gold to hedge geopolitical risks. “While some systematic risks in the global economy, such as the meltdown of the euro zone, have been partly allayed, the developed world is still carrying a burden of debt that remains largely unaddressed,” it said.

Coutts expects Indian curbs on gold imports will eventually be eliminated, while Chinese retail demand remains upbeat and signs of a pickup in jewelry demand in Western economies are emerging.

“We see current prices as an attractive entry point given our view that the balance of risks now points to the upside,” it said.

Others also see reasons to at least turn less negative on the metal.

“We do think the bulk of that (exchange-traded-fund) selling is now behind us and we will only perhaps see moderation in selling, if any selling at all,” said David Lennox, resources analyst at independent research house Fat Prophets.

(Read more: I wouldn`t buy gold with my worst enemy`s cash: Strategist )

“When you have a look at what the industry itself is doing, it is now actually adjusting to the lower gold price environment. We`ve seen primary production starting to moderate. We`ve seen secondary production, through recycling, actually collapsing through the latter part of 2013. And we saw a good increase in jewelry demand and also in industrial demand,” Lennox told CNBC. “We do think that`s going to lend quite strong support to the gold price,” he said, adding he expects the price to rally toward the latter part of the year.

To be sure, a positive view on gold isn`t the consensus.

“If the dollar is moving up, which is our case, real interest rates are moving up, the world healing, normalizing, that`s hardly an environment for gold to do well,” said Bob Doll, chief equity strategist at Nuveen Asset Management, which has around $115 billion under management.

(Read more: Contrarian view: Why gold will recover in 2014 )

“(When) people bought gold, they were concerned about inflation – not a problem at least that I can see – and that the system might fall apart. Neither of those things happened so it`s no surprise that gold finally had a tumble. I don`t think we`ve seen the lows yet,” he told CNBC.

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

Copyright 2011 cnbc.com

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10% stock correction coming, gold going down: Nuveen AMC

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Nuveen’s Bob Doll sees a 10 percent stock correction amid a pretty good but volatile year for stocks, and he expects gold and other commodities to continue to fall.

Doll, chief equity strategist at Nuveen Asset Management, also sees the economy growing at a 3 percent pace and the 10-year Treasury yield topping out at about 3.5 percent in 2014, while the Federal Reserve continues to hold short-term rates near zero. It should become clear by the end of the year that inflation has bottomed, but it will not be a factor to help gold out of its slump in 2014.

“In our opinion, the mystery is not that gold finally came down—the mystery is that it took so long. The preoccupation with gold was originally related to a concern about the viability of the financial system, and the concern about inflation with so much money being ‘thrown’ at this system,” he said in his forecast. Gold lost about 28 percent last year, its worst decline in more than three decades.

 “Now the added headwinds of improving global growth and a reduction in systemic threats, some rise in real interest rates, and likely dollar improvement, all put further pressure on gold’s allure. In addition, the lack of strong global economic growth and abundant supply for many commodities likely argues for trendless, but volatile (as usual) commodity prices,” he noted.

As for stocks, he expects the stock market to continue to perform well, and cyclicals should outperform defensive stocks, while gains should be “less ebullient” and the market more volatile. Market gains will depend more on earnings growth, rather than on multiple expansion.

(Read More: Wien sees 10 percent correction)

“While expectations of high single-digit or low double-digit percentage gains are not unreasonable, we also think a noticeable pullback some time during the year is likely to be caused by overbought and deteriorating technical conditions. We would use pullbacks as buying opportunities as most fundamentals continue to improve,” Doll said in his forecast.

After the S&P 500’s more than 29 percent increase in 2013, Doll expects active managers to outperform the index funds in 2014.

Doll expects the dollar to appreciate, while U.S. energy and manufacturing trends continue to improve.

He sees companies continuing to drive gains with double-digit increases in dividends, stock buybacks and merger activity. Capital expenditures should also increase at a double-digit pace, due in part to delayed investment.

“Dividends and buy-backs have been increasing in recent years, but we expect the largesse to spread to businesses reinvestment (capex) and buying the company ‘down the street.’ Pent-up demand and aging of plant, equipment and technology argue for increases in those key areas,” he said in the forecast.

Municipal bonds should also outperform other fixed income, after massive outflows in 2014. Even though their performance should be mixed, pricing has become more attractive.

“The visibility of Detroit’s and Puerto Rico’s difficulties has created an interesting opportunity for municipal bond investors. We believe the fall of 2013 was a turning point for state and local governments as politicians and unions have begun to agree to some reduced pension benefits,” he noted.

Washington will fall more into the background for markets in 2014, and will be more “benign, and more likely constructive” after the turbulence of 2013.

“The recently negotiated ‘small ball’ deal between Democrat Patty Murray and Republican Paul Ryan will likely reduce the negative focus on fiscal policy. The November mid-term elections will soon dominate Washington with the likelihood of Republicans slightly increasing their lead in the House of Representatives, and increasing representation, but failing to control the Senate,” he noted.

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Apple, Amazon downgraded ‘on moral and ethical grounds’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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One analyst blacklisted several companies on Monday, citing a reason not often (or possibly ever) heard on Wall Street—moral and ethical grounds.

In the report, Ronnie Moas, Standpoint Research’s founder and director of research, downgraded Apple stock from a “hold” to a “sell,” reiterated a “sell” recommendation for Amazon.com shares and initiated Philip Morris stock with a “sell” rating.

After holding in his feelings for “too long,” Moas wrote that he couldn’t sleep despite taking his nightly sleeping pill. At 1 a.m., he reached his boiling point and felt compelled to speak his mind.

Moas’ Standpoint bio page states he began his career as an analyst and market strategist at Herzog Heine Geduld, which was bought by Merrill Lynch in 2002, before leaving to start his own firm in 2000. Before this, he served for three years in the Israeli army and worked in concert productions.

“For Apple Computers to pay their workers USD 2 an hour while they have USD 150 billion in the bank is nothing short of obscene. I heard all of the arguments in their defense and they make no sense to me,” wrote Moas in the note.

Thomson Reuters StarMine, which tracks and ranks analysts’ performance, has no record of Moas’ recommendations on Apple. According to published reports, he downgraded the stock in August from “buy” on valuation concerns.

While Moas said there are dozens (if not hundreds) of companies he would like to blacklist, he singled out just three in the report, noting that he planned to speak his mind even if it resulted in the destruction of his business.

“Philip Morris has the black lungs and blood of 500,000,000 people on their hands,” he wrote, acknowledging that his email was controversial and would upset many.

“I recently read something about Amazon and how much pressure is on their employees … and at the same time Jeff Bezos with his obscene net worth of USD 27 billion was on his yacht in the Galapagos Islands. USD 27 billion and this man is not treating his workers fairly? It boggles the mind,” Moas wrote.

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Nissan gives the London black cab a lick of fresh paint

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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London is well-known for its iconic vehicles. Its red double-decker buses and black taxis are as a much a symbol of London as Buckingham Palace and Big Ben.

So Japanese automaker Nissan was very mindful of tradition when it came to designing its new black cab for London, unveiled Monday.

The Nissan NV200 may retain the color and bulky presence of the famous London Hackney Carriage, but there are notable changes: round headlamps, an LED light to improve visibility of the traditional taxi sign, and a 1.6 litre petrol-engine replacing the previous model’s diesel.

(Read more: Would you pay $75 to sleep inside a London cab?)

Nissan first launched the NV200 in August 2012, but since then it has modified the vehicle after feedback from the London Mayor’s office, Transport for London (TFL) and other organizations. Nissan said that they re-modelled the front grille of the original NV200 to give it a traditional back cab “face.”

The new taxi, which will be built in Barcelona, will be launched in December 2014 and Nissan will introduce a zero emission electric version of the taxi in 2015. Nissan’s London cab is part of the automaker’s global taxi program which includes the cities of New York, Barcelona and Tokyo.

According to TFL, there are currently 25,597 licensed cab drivers in the capital and 22,708 licensed vehicles. The London Taxi Company currently produces the most number of vehicles in service, with its TX1, TX2 and TX4 models comprising just over 20,000 of all London black cabs.

(Read more: Black Christmas as London runs out of cabs)

 While the new cab may look rather different to the traditional black cab Londoners and tourists are familiar with, Design Excellence Manager at Nissan Design Europe (NDE) Darryl Scriven was at pains to stress how much the company worked to ensure their vehicle looked the part.

“The main challenges were concerned with making sure customers can easily recognise it as a taxi,” he said in a statement.

“Being in London, we were able to go out and talk to cabbies about what was important to them as well as look at the vehicle from a customer’s viewpoint. It’s unusual for us to be able to work on something as bespoke as this, specifically for one location in the world and we are very proud to have been asked to do so.”

(Read more: Yo! Finally, smartphone apps that call a taxi)

—By CNBC’s Kiran Moodley. Follow him on Twitter @kirancmoodley

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India’s hottest startup is a political party

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The new kid on India’s political block, the Aam Aadmi or Common Man Party, has stunned the nation with its meteoric rise since its inception just over a year ago, but the question remains: does it have enough momentum to win big in the general elections?

Operating on a shoe-string budget, the anti-graft party, led by former tax official Arvind Kejriwal, has managed to capture the hearts and minds of disenchanted Indians looking to eliminate the rampant corruption that has plagued the country for decades.

(Read more: Why India’s state elections matter)

“The Indian electorate has become increasingly dissatisfied with the performance of the ruling United Progressive Alliance [UPA] coalition government led by the Congress Party, reflecting a broad range of issues, including the extreme levels of corruption in India,” Rajiv Biswas, Asia chief economist at IHS told CNBC.

“Unlike the Congress Party or Bharatiya Janata Party [BJP], the Aam Aadmi Party [AAP] is a new party founded in 2012 by its charismatic leader Arvind Kejriwal, with a strong focus on fighting corruption and improving the efficiency of Indian government,” he added.

India, the world’s largest democracy, was ranked 94 out of 177 countries in the 2013 Corruption Perceptions Index published by Transparency International.

The electorate’s yearning for change is evident in the party’s growing support base, which is expanding rapidly both domestically and abroad.

(Read more: Indian market euphoria could end in disappointment)

For instance, V Balakrishnan, who recently stepped down as a board member of I.T. services giant Infosys, announced last week that he has joined the AAP.

Meanwhile, thousands of non-resident Indians (NRIs) across the world are coming together to generate awareness and raise funds for the party.

In the eight months leading up to December’s Delhi state election, the party raised around 200 million rupees (USD 3.2 million) globally via online donations, with over 65 million rupees coming from outside India, according to Saket Tandon of the AAP Singapore Forum.

Tandon, who dedicates his evenings and weekends to developing social media campaigns and fund raising initiatives for the party said, “The Aam Aadmi Party has given Indians across the globe a common interest, a common platform. We are all fed up with the political scenario. This gives us hope that things can change,” he said.

State vs general elections

The party made a speculator debut in the recent Delhi state elections, winning 28 out of the 70 seats – dwarfing the ruling Congress party’s 8 seats, and almost matching the opposition BJP’s 31 seats.

In late December, Kejriwal formed a government with the support of the Congress which currently leads the national coalition. At age 45, he is the Delhi’s youngest chief minister.

(Read more: Indian Prime Minister’s mixed legacy)

However, the question remains whether the anti-corruption crusader can replicate his success outside of Delhi in the country’s general elections due to be held by May 2014.

According to Jan Zalewski, South Asia analyst at global risk consultancy Control Risks, whether the AAP can be a real national alternative to Congress or BJP will likely depend on how the party is able to deliver on extremely high expectations and how it develops and diversifies its political vision.

“For now, the AAP is still in its infancy, with fledgling party structures and a still-weak political vision beyond its core anti-corruption focus,” Zalewski said.

“It is thus likely to be able to tap into – and thus to a certain extent dilute – the two main parties’ share of votes in many states where it decides to contest elections. In the short term, this could increase the fragmentation of Indian politics,” he added.

—By CNBC’s Ansuya Harjani. Follow her on Twitter @Ansuya_H

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China ‘major’ uncertainty facing global economy: Soros

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The future direction of China is the “major” source of uncertainty facing the global economy at the moment, according to billionaire investor George Soros.

“The major uncertainty facing the world today is not the euro but the future direction of China. The growth model responsible for its rapid rise has run out of steam,” Soros, chairman of the Soros Fund Management, wrote in an opinion piece on the Project Syndicate website on Thursday.

Soros says there are “unresolved contradictions” in the leadership’s current policies, which would have profound consequences for China and the world if they are not addressed.

“The Chinese leadership was right to give precedence to economic growth over structural reforms, because structural reforms, when combined with fiscal austerity, push economies into a deflationary tailspin,” he said.

(Read more: Contrarian call: China to see double-digit growth in 2014)

“But there is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years,” he said.

While the People’s Bank of China began taking steps to curb the growth of debt in 2012, the government asserted its authority when the slowdown started to cause distress in the economy, he said. In July 2013, the leadership ordered the steel industry to restart the furnaces and the central bank to ease credit, enabling the economy to turn on a dime, he noted.

The economy’s reliance on credit was illustrated in a recent report published by the country’s state auditor, the National Audit Office, which showed local government debt had increased 67 percent from the end of 2010 to reach 17.9 trillion renminbi ($2.95 trillion) by the end of June 2013.

(Read more: China debt: The biggest ‘known, unknown’ in 2014?)

“A successful transition in China will most likely entail political as well as economic reforms, while failure would undermine still-widespread trust in the country’s political leadership, resulting in repression at home and military confrontation abroad,” he said.

According to Soros, there are some “eerie resemblances” with financial conditions in the mainland and those that prevailed in the US in the years preceding the crash of 2008.
However, he acknowledges that the Chinese government’s control over the economy is a key, underlying difference between the two countries.

(Read more: China will not overtake US economy until 2028: CEBR)

“In the US, financial markets tend to dominate politics; in China, the state owns the banks and the bulk of the economy, and the Communist Party controls the state-owned enterprises,” he added.

—By CNBC’s Ansuya Harjani; Follow her on Twitter: @Ansuya_H

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Want better returns? Hire a good-looking CEO

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Attractive chief executives receive higher total compensation, better returns on their first days on the job and boost stock performance when they appear on television, according to the preliminary findings of a new study.

Joseph Halford and Hung-Chia Hsu, two economists at the University of Wisconsin, released a working paper called “Beauty is wealth: CEO appearance and shareholder value.” In the paper, they rated the attractiveness of 677 CEOs from S&P 500 companies based on “facial geometry.”

The study wanted to find out whether there was a positive relation between the attractiveness of a company’s CEO and a return on investment in that company, something argued by John Graham, R.Campbell and Manju Puri in a 2010 paper from Duke University. These three authors said that good looks made CEOs appear more competent and gave them better negotiating skills, enabling them to extract better deals for shareholders.

(Read more: The ‘sexy’ central banker who’s causing a stir)

When looking at the relationship between CEO attractiveness and stock returns around their first day in the job, Halford and Hsu concluded: “We find that FAI (facial attractiveness index) has a positive and significant impact on stock returns surrounding the first day when the CEO is on the job, indicating that shareholders seem to perceive more attractive CEOs to be more valuable.”

Halford and Hsu told CNBC that Marissa Mayer, the president and CEO of Yahoo, was a good example, based on their report. “She scored 8.45 (out of 10) in our facial attractiveness index and is among the top 5 percent (best-looking) in our sample,” they wrote. “Yahoo has been doing well since she became the CEO (about 158 percent increase in stock price).

“Of course, we don’t mean that all the increase in stock price is from her appearance. We just find that there might be some positive correlation between the two.”

(Read more: Marissa Mayer goes glamorous in Vogue! fashion-heavy profile)

The economists conducted a variety of tests, for example, analyzing 1,830 merger and acquisition deals between 1985 and 2012. They discovered that: “The evidence…suggests that more attractive CEOs receive more surpluses for their firms from M&A transactions, a finding consistent with the hypothesis that more attractive CEOs improve shareholder value through superior negotiating prowess.”

Furthermore, the paper looked into CEO television appearances—which they restricted to those shown on CNBC.com between 2008 and 2012—and whether there was any correlation between the appearance of an attractive CEO and stock returns. Halford and Hsu concluded that shareholders responded positively to viewing more attractive CEOs on television.

Does this mean that Halford and Hsu would suggest that companies hire stunning CEOs to ensure a more profitable existence?

“Our results do not suggest that, when searching for CEOs, firms should only look at appearance without considering other abilities,” they wrote in an email to CNBC. “On the other hand, for firms that rely more on the negotiation and visibility aspects, maybe they should place more weight on appearance when searching for CEOs.”

This is not the first time the interaction between beauty and business has been investigated.

(Read more: Are you one ofthe best—or worst—leaders?)

In 1994, University of Texas economist Daniel Hamermesh coined the term “pulchrinomics,” or the economic study of beauty. He wrote about the topic in the American Economic Review, commenting on a study conducted by himself and his colleague, Jeff Biddle, where interviewers in the 1970s had had ranked the attractiveness of US and Canadian workers, as well as noted their earnings. More attractive workers were found to earn a 5 percent premium over those of average appearance.

“Wages of people with below-average looks are lower than those of average-looking workers; and there is a premium in wages for good-looking people that is slightly smaller than this penalty,” the report noted.

Commenting on Halford and Hsu’s report, Robert Williams, principal and director at recruitment firm Asia Media Search, said first impressions were important.

“A commanding presence will add credibility either consciously or subconsciously, rightly or wrongly,” he told CNBC via email. “My guess would be that Wall Street, like Washington, will always put stock in good looks as a measure of ability.

“I wonder if in today’s instant media world, whether Abraham Lincoln, with his acne scarred face, lanky body and high pitched voice, would ever have been elected, or FDR for that matter. Would the television media focus just on his wheelchair?”

He concluded: “As a recruiter, I feel the focus should be a candidate’s abilities and accomplishments, not the smile. But human nature is what it is.”

—By CNBC’s Kiran Moodley. Follow him on Twitter @kirancmoodley

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Contrarian call: China to see double-digit growth in 2014

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China is set to return to the heyday of double-digit gross domestic product (GDP) growth in 2014, driven by a revival in global demand that will ignite the country`s export engine, according to an investment strategist.

“I`m looking for 10 percent by the end of the year from China – they will be surprising a lot of people. With the US dollar going up, look for exports out of China to start picking up,” Jack Bouroudjian, chief investment officer at Index Financial Partners told CNBC Asia`s ” Squawk Box ” on Friday.

The world`s second-largest economy last saw double-digit growth rates in the second quarter of 2010, when it grew at a rate of 10.3 percent. For 2013, the economy is expected to post growth of 7.6 percent, according to a Reuters poll, a touch above the government`s target of 7.5 percent.

“Pay attention to what`s going on around China because I have a feeling that is one of the things that`s really going to drive the double-digit-growth,” he said, citing increased demand out of neighboring Japan as its economy strengthens.

However, the country`s recent economic indicators, such as the final HSBC manufacturing Purchasing Managers Index (PMI) for December, have suggested unsteady external demand.

A sub-index measuring new export orders fell to a four-month low of 49.1, the first time since August that it dropped below 50 points. Meanwhile, the official PMI showed new export orders contracting for the first time since July.

Several China watchers also disagreed with Bouroudjian`s bullish outlook, arguing that the government`s clamp down on rampant credit growth would constrain rapid economic expansion.

“Just looking at the [local debt] audit outcome that we had a couple of days ago, if there`s anything, they want to bring credit growth down to much lower and sustainable levels,” said Hartmut Issel, head of wealth management research, UBS Singapore.

“That in itself speaks very clearly against the 10 percent,” he added.

China`s National Audit Office reported this week that local government debt had increased 67 percent from the end of 2010 to reach 17.9 trillion renminbi (USD 2.95 trillion) by the end of June. The report highlighted concerns over the country`s credit addiction at a time when it`s struggling to sustain economic growth.

Vasu Menon, vice president, wealth management, Singapore, OCBC Bank added Beijing`s push to rebalance the economy away from being investment-driven to consumption-led, will also limit growth.

“The Chinese government is trying to reform the economy. That is going to take time, it requires adjustment. If you have heady growth of 10 percent, then you have higher property prices and a lot other problems,” he said.

-By CNBC`s Ansuya Harjani; Follow her on Twitter @Ansuya_H

Copyright 2011 cnbc.com

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Could currency wars make a comeback in 2014?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Currency wars: the buzz word that dominated markets early last year threatens to make a comeback at the start of 2014, judging by a rise in official rhetoric from Japan`s neighbors about a weak yen.

South Korea is “closely monitoring” the won and the continuing depreciation of the yen, the country`s Finance Minister Hyun Oh-seok was quoted saying on Friday. The comments follow similar remarks earlier in the week from Chinese and South Korean officials.

Perhaps it`s no wonder that concerns about the yen`s sharp fall, which gives Japanese exporters an edge over its competitors in overseas markets, have resurfaced.

The won on Thursday hit its strongest level in more than five years, contributing to a fall in South Korean stocks to a four-month low on Friday. The yen hit a 15-year low of around 5.7360 yuan on Thursday.

“You`ve got to understand what the threshold of pain for other Asian nations would be,” said David Greene, had of dealing at AFEX Australia.

“From a technical perspective, 112 [for dollar/yen] is possible this year. Whether other Asian economies such as South Korea see that as negative for their own economies and start to play an intervention role or enter a currency war within the region remains to be seen,” he said. “It`s not something I would like to bet on as we don`t know what central banks are going to do.”

Verbal intervention from Japan`s neighbors this week may have contributed to the bounce in the Japanese currency against the won, yuan and US dollar on Friday. The yen traded at about 104.36 to the greenback, off this week`s five-year low around 105.44.

In early 2013, talk of currency wars, triggered in part by the yen`s sharp fall, dominated currency markets. That was before another big theme of 2014 emerged – talk of an unwinding of U.S. monetary stimulus.

“It`s really the yen crosses that we`ll see a lot of the big moves in this year,” Michael Woolfolk, managing director and senior currency strategist at BNY Mellon in New York told CNBC Asia`s ” Squawk Box .”

“It should put a lot of pressure on the emerging Asian currencies. We think they will push back, that there will be an escalation of currency wars and intervention is the most likely route,” he added.

The yen declined almost 22 percent against the dollar last year against a backdrop of aggressive monetary easing by the Bank of Japan and broad strength in the U.S. currency on talk of Fed tapering. It was the worst performing major currency of 2013.

“The yen/won movements have not hit exporters significantly, but it does look like they [the South Korean authorities] are taking a pre-emptive approach so the noises they`ve made this week are not unusual,” said Mizuho Corporate Bank Market Economist Vishnu Varathan.

“We`re not looking at exceptionally strong currencies across emerging markets, so I think it will be just the export-focused north Asia that continue to make noise about their strong currencies,” he added.

– By CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter

 Copyright 2011 cnbc.com

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US vs Europe: Which equities will win in 2014?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The outgoing year was certainly a remarkable one for equities – with markets in both the US  and Europe posting double-digit gains. But analysts have warned that 2014 is unlikely to prove so lucrative for stocks, although America is expected to outperform Europe yet again.

US stocks ended 2013 at record highs, with the S&P 500 posting its largest annual jump in 16 years and the Dow its biggest gain in 18 years. While across the Atlantic, the pan-European benchmark STOXX 600 clocked gains of 17 percent, after a year in which faith in a euro zone recovery returned to the markets.

“You’ve got to wonder how much of that we’re going to be able to keep into the next year,” Daniel Morris, global strategist at TIAA-CREF Asset Management told CNBC on Thursday – the first trading day of the year for most major markets. “So consequentially, (we have) pretty modest expectations for returns for equities in 2014.”

That view is shared by Brenda Kelly, chief market strategist at IG.

“If you look where we are in the cycle at the moment, we have seen record levels for American stocks. You have to question whether we can see the same type of returns and I don’t think that is totally possible,” Kelly told CNBC.

Read more: Wall Street closes 2013 at records

Although another blow-out year might not be on the cards, analysts expect strong economic growth – particular in the US , where gross domestic product (GDP) grew at a 4.1 percent annual rate in the third quarter – to continue to drive equities.

Morris, for instance, expects the US economy to accelerate evenly throughout 2014, forecasting economic growth of between 2.5-3 percent for the US , although “certainly less for Europe.”

Jim McCaughan, CEO of Principal Global Investors, also expects US  GDP to continue to grow, which he said “means the US  domestic economy should be quite a profitable place to be invested.”

Read more: Europe logs best annual gains since 2009

Markets could surprise to the upside when first-quarter earnings season kicks off in the US  later this month, he said. “Europe’s another matter, but I’m pretty optimistic about how the US  economy can go,” he added. “I think the fourth-quarter could be quite positive in terms of US  results.”

Growing concerns

One factor holding earnings expectations back in Europe is an ongoing concern about the strength of the region’s economic recovery. GDP across the 28 countries that make up the European Union rose by 0.2 percent during the third-quarter of 2013, compared with the previous quarter, and increased by just 0.1 percent in the euro zone.

Read more: 2013: A record-breaking year

“I just don’t see where the growth is coming from in Europe. I’m skeptical of this ‘Europe is cheap argument’ argument – the valuations are low, but I don’t see the European markets as being competitive compared with US ,” McCaughan said.

The fortunes of European equities would be heavily dependent on the US  over the year, according to McCaughan. He forecast that in 2014,US  equities would rise by between 10 and 20 percent, while European equities could languish and post no growth at all.

“(But) if it turns out to be another blow-out year like last year, European equities will be dragged up. If it turns out to be a break-even for the US  I would expect European to be down,” he added.

Central bank boost?

One factor that could give European equities a boost is further stimulus measures by the European Central Bank. The bank surprised markets in November by cutting its main interest rate to a new low of 0.25 percent – and its President Mario Draghi has repeatedly stated the bank is prepared to do more if necessary.

“There is an argument to be made for rotation into European equities. We could see monetary policy easing in the euro zone and possibly some degree of liquidity measures which should be bullish for European equities, but I would still question the growth prospect of the euro zone,” Kelly said.

Read more: Five things that could go wrong in 2014

Mike Ingram, market analyst at BGC Partners expects the ECB to introduce further stimulus around Easter this year. “OK – that’s a function of economic weakness, but the immediate reaction in the market, and the anticipation of that, is going to be positive.”

There are, however, some European equities worth investing in, according to McCaughan.

“What’s good in Europe are global companies, German car companies, aerospace, luxury goods – those are all things that don’t just depend on the European economies. Anything that’s dependent on the European economies – financials, retailers – be very wary,” he warned.

—By CNBC’s Katrina Bishop. Follow her on Twitter@KatrinaBishop and Google 

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