Good but not vintage
Over the past two years, global equity returns have been driven entirely by multiple expansion, with aggressive monetary policy helping reduce tail risks and lower the equity risk premium. With QE coming to an end this is unlikely to continue in 2014. However, we do not foresee a new bear market. Economic growth is picking up, earnings are likely to meet relatively modest expectations and retail investors are finally returning to equities. We see a total return of around 10% for the global market by end-2014.
Global themes for 2014
In the regional reports that accompany this global overview, we asked our analysts to identify the investment themes which they think will drive their sector over the coming 12 months. A careful reading of these themes reveals some interesting common threads from a global perspective. Below, we highlight the six most often-cited themes: * Regulation/government policy (p. 15). Six years after the global financial crisis, governments continue to interfere in markets, creating potential winners and losers. * Margin improvement (p. 16). With top-line growth likely to remain hard to come by, the focus will remain on improving margins. * M&A (p. 17). Our analysts see a new wave of M&A starting, based mainly on structural consolidation. * Stretched valuations (p. 17). After five years of a bull market, some valuations are beginning to look stretched. We believe investors should focus on second-tier stocks where valuations remain attractive. * Higher interest rates (p. 18). As the Fed moves towards tapering, analysts are increasingly nervous about companies with high gearing or that are otherwise affected by rising rates. * Tech break-throughs/new models (p. 19). A convergence in technologies is dramatically altering many business models.