Investment prospects – bullish or bearish? Half full or half empty?

There has been a lot of good news recently on the financial and economic fronts. Business confidence in the UK is rising and the markets have been performing well. Elsewhere, industrial output figures suggest that the Eurozone is recovering, whilst the US Dow Jones index ended the month of April at a record level. Even the Spanish economy grew – and at its fastest rate since 2008. So it would seem that we are in a glass half full phase.

However, a recent article in the Guardian provided a sober counter-balance. Entitled ‘Five signs that the global recovery may be an illusion’, the article suggested that the world of 2014 was not very dissimilar to the world of 2004, when things started to go wrong last time around.

These five signs include potential problems in world bond markets, the dependency on exceptionally low interest rates, the difficulties that will be faced in unwinding the stimulus packages that have been used by central banks, plus possible future conflicts over dwindling natural resources. If you add in the continuing problems in the Ukraine, it would seem more like a glass half empty phase.

Undeterred by this, both the FTSE 100 and S&P indices have recently reached or are just below record highs. The FTSE 100 reached 6,873.08, only 57 points short of the all-time high of 6,930 that was reached on the final day of trading on 1999. Many investors expect the FTSE 100 to break the 7,000 barrier later this year.

In the US, record highs were reached as the Dow Jones Index rose 111.87 points to 16,695.21, the S&P 500 gained 18.07 to 1,896.55, whilst the Nasdaq rose 71.99 to 4,143.86.

Against this, some analysts believe equity markets are over-heating, and fear that “vulnerable” stocks are poised for a crash. They believe that developed equity markets are now overvalued and that markets could see a correction.

With opinions so polarised, what is the reality of the situation? As always, the truth is probably to be found somewhere in the middle. There has been good news in the first few months of 2014 but with no major breakthroughs in any of the major economies. Here’s a brief round-up of the rest of the world.

In Europe, Germany saw GDP grow by 0.8% in the first three months of 2014, whilst France’s economy was flat. Despite that, the German stockmarket only moved up a little to close the month at 9,603, whilst the stockmarket in France rose by 2%, to close at 4,487.

In the Far East, April saw the World Bank cutting its growth forecasts for the Asian economy, expecting GDP for the region to increase by 7.1% in 2014 and 2015, and trimming its forecast of Chinese growth very slightly to 7.6%.

In Japan, inflation increased to 1.5% and the trade deficit widened significantly, and is almost back to the record deficit recorded in September 2007. By way of contrast, South Korea recorded another surplus of $4.4bn, with its exports showing the highest annual increase in 15 months.

On the stockmarkets, China’s Shanghai Composite index was almost unchanged at 2,026, as was Hong Kong at 22,134. The South Korean index fell a little to 1,974 but Japan’s Nikkei Dow index fell 4% to 14,304. The Japanese market is now down 12% since the start of the year.

In Emerging Markets, the Ukraine situation has impacted on the Russian stockmarket, which fell 5% in April to 1,306 and is down 12% in the first four months of the year. Russia is now officially in recession and ratings agency Standard & Poor’s downgraded the country’s rating to one notch above ‘junk’ status.

Elsewhere, in India, despite the prospect of 800m voters going to the polls in the world’s largest democracy, the stockmarket ended the month of April more or less unchanged on 22,418.

Meanwhile Brazil, the other major emerging market, had a good month with the stockmarket rising 2% to end April at 51,626.

So there you have it.  

With such conflicting noise around, coupled with the uncertainty caused by some major geopolitical issues, the key to remember is that investing is a long-term game. There will be ups and downs along the way, but historically to date, in the long-term, equities have delivered handsomely.

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