What can investors, borrowers and savers and expect in 2013? We ask the experts.
As 2012 draws to a close, we have asked a variety of financial experts to gaze into their crystal balls to see what 2013 has in store for investors, savers and borrowers.
While their predictions vary, all agree that we will continue to face challenging times, with economic weakness both at home and abroad, and inflation and low interest rates continuing to threaten our finances.
But there are more positive indications starting to emerge from the mists of the financial crisis. Some are expecting a small but more sustained economic recovery in the latter part of 2013, which could mean another good year for equities. And investors already appear more confident, with more putting money in shares rather than bonds or cash. If this trend continues, it will only help bolster markets.
But which assets look set to prosper most in 2013, and just how brave do you have to be to beat inflation?
EQUITIES OR BONDS?
"The slowdown should trough during the early part of the year without the type of collapse we saw in 2008, to be followed by a gradual recovery in growth," said Willem Sels of HSBC Private Bank. "While we do not expect the recovery to be particularly strong, at least in the early stages, it will nevertheless be an improvement on this year.
"This turnaround, coupled with some of the political uncertainties being behind us, should encourage investors to take more interest in real, higher-yielding assets such as equities."
Psigma, the investment manager, said 2013 should be a solid year for stock markets, as investors woke up to the miserably low yields available from most fixed-interest investments and sought higher returns from equities instead.
Robert Currie of Nedbank Private Wealth said: "It is always useful to start any discussion about future performance by considering valuations. With the UK equity market currently on a price to earnings (PE) ratio of just 11, and 10-year government bonds yielding only 1.8pc, the case for equities is very strong."
WHERE WILL THE FTSE FINISH?
Most commentators are optimistic that the FTSE 100 (FTSE: ^FTSE - news) will be higher at the end of 2013 than it is now. (The index closed at 5925 on Friday.) Some bulls are predicting that it could finish the year at 6500.
"FTSE predictions are virtually impossible because it's a capital weighted index [big companies have the most influence]," said wealth manager Alan Steel. "But I wouldn't be surprised to see it burst through the 6000 barrier early next year and stay there it could even finish above 6,500."
Brewin Dolphin (LSE: BRW.L - news) predicted that the index would finish at 6,350; HSBC Global Banking & Markets forecast 6500. Ben Yearsley of stockbrokers Charles Stanley said he expected the FTSE to be between 6200 and 6500 in a year's time. Nedbank Private Bank predicted 6350.
WILL CHINA GROW AGAIN?
There have been fears of a hard landing for the Chinese economy all year. After more than a decade of rapid growth the new superpower was hit by the global credit crisis, and it has remained volatile in 2012.
But many experts are predicting a recovery in 2013. "The outlook for emerging markets as a whole has improved significantly now that the world economy and China in particular are showing clear signs of recovery," said Maarten-Jan Bakkum, the senior emerging markets strategist at ING Investment Management.
"In September Chinese share prices started to rise. Since then Chinese economic figures have improved further, and economists are busy revising their 2013 growth forecasts upwards." He was similarly positive about the outlook for other emerging regions, particularly Brazil, Russia and India.
Anthony Bolton, who runs Fidelity's China Special Situations investment trust, was more circumspect. "The nature and quality of growth in China are changing," he said. "The export and investment-driven model is being gradually superseded by a consumption-driven one. This means economic growth in the future will be lower but the quality should be higher."
That does not mean the nation is without risk, however. Mr Bolton highlighted China's deteriorating relationship with its neighbours, especially Japan.
WILL EUROPE EMERGE FROM THE GLOOM?
Our sages predict that dark clouds will remain over Europe next year.
Franklin Templeton said forthcoming Italian and German elections could spark more volatility in the eurozone that could spill over and affect the British economy. "The eurozone debt crisis is likely to remain a significant risk for the UK economy in 2013," a spokesman said.
Neptune's head of European equities, Rob Burnett, said progress had been made in Europe but to bring the crisis to a close there needed to be significant reform, such as lower labour costs in countries on the periphery of the eurozone.
"Economically, the EU is on track. The key risks are political it will be important to keep the Greek government in power and prevent major shifts in policy in Spain and Italy. Provided that political risks can be contained, Spain and Italy may not need assistance from the European Central Bank in 2013," he said.
But concerns about debt aren't limited to Europe. Lombard Odier's investment strategy committee said it expected the debt crisis to rotate from Europe to Japan during the year.
ANY UNUSUAL PUNTS FOR THE ADVENTUROUS?
For those who fancy a flutter, technology could be a sector to watch in 2013.
Dean Turner, an investment strategist at HSBC Private Bank, picked the Polar Capital Technology fund. "The ongoing transition to mobile computing, a result of the proliferation of smartphones and tablet devices, has changed the way we access information and store data. This should be beneficial for software providers as well as data-hosting companies," he said.
For a more niche bet, consider manufacturers of food flavours and fragrances. Companies in this field that have exposure to emerging markets will do well in 2013 and beyond, according to M & G.
"The emerging middle classes of developing nations, forecast to rise threefold over the next two decades, will stoke increased demand for Western-style foods," said Randeep Somel, the deputy manager of the M & G Global Basics fund. "Flavour and fragrance suppliers would benefit from this."
Several forecasters said agriculture could do well in 2013, in particular companies that are leaders in seed technology. Thanks to population growth there will be huge pressure on agricultural commodities in years to come, and companies that develop the technology to deliver higher-yielding crops could generate huge profits. Funds such as First State Agriculture and stocks such as Syngenta (Frankfurt: 589328 - news) and Monsanto could benefit.
MORTGAGES AND HOUSING
Next (Other OTC: NXGPF - news) year looks likely to be another disappointing one for house prices. Mortgage borrowers who are on their bank's standard variable rate, waiting for the right time to switch to a fixed rate, should get ready to move. The Government's Funding for Lending scheme has lowered the cost of fixed-rate mortgage deals, a trend that is likely to continue in the early part of next year.
Mark Harris of mortgage broker SPF Private Clients predicted a small rise in house prices next year, although he expected the divide between property values in the north and south of Britain to deepen.
"There will be no movement in Bank Rate, while mortgage rates will fall further as more lenders take advantage of Funding for Lending," he said. "Hopefully, this will also mean more choice and better rates for those with small deposits, such as first-time buyers."
Moneysupermarket.com said lenders would continue to clamp down on interest-only mortgages in 2013, making it harder for those who have these deals to remortgage.
There are no bright spots on the horizon for savers . The Funding for Lending scheme, which gives banks access to cheap credit, is likely to mean further cuts to savings rates.
Susan Hannums from SavingsChampion.co.uk said M&S and Intelligent Finance had announced savings rate reductions for 2013, and she expected that it "won't be long" before other players catch up.
With fewer good deals around, savers need to remain vigilant and move their money when accounts become uncompetitive, the experts advised. However, although Isa rates may be lower than last year, savers are still advised to make the most of these tax-free savings plans as interest is paid gross, rather than having 20pc tax deducted at source.
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