The year 2012 turned out to be not a bad year for global equity markets.
Given that in 2012, we were not sure the EUR would remain in-tact, that Greece would stay in the Eurozone, global equity markets held up surprisingly well! Let us see what happened in more detail.
The US markets did better than Europe and are only 8% lower from their all time high of 1575 achieved in 2007 (S&P500 index).
The standout star performer in Europe was Germany recording a nearly 30% increase in the main index the DAX. Another star performer? Greece. Yes Greece.
Hedge funds brave enough to buy Greek government bonds, like Third Point, made handsome returns.Greece’s equity market soared by 50% in 2012 despite all the uncertainty of the country to pay its bills. Once again the market did the unexpected.
So what to expect in 2013?
While nobody knows how 2013 will play out, here are our ten predictions for the coming year.
- Deutsche Telekom will finally outperform the Dax Index after chronic underperformance last year and the past five years
- BP after another poor year of share price performance will outperform the Stoxx 50 by a wide margin
- The FTSE 100 benchmark UK Index will outperform the Stoxx 50 Index after a poor 2012 performance
- Credit Suisse will outpeform the Euro Stoxx 50 (currency adjusted)
- European consumer staples will underperform the Stoxx 50
- Lazard will outperform (S&P 500) as 2013 will be the year where dealmaking and M&A returns as corporations sit on strong balance sheets
- LMVH despite the high valuation and strong outperformance will continue to outperform the CAC 40 for 2013
- Nasdaq 100 will outperform the S&P 500 as valuations in the sector are more attractive
- Banque Edmond De Rothschild will outperform the SPI as interest in low valued banks /asset managers continues to grow
- S&P 500 will barely move this year (+4/-4%) as continued uncertainty reigns and valuations prove to be on the high side
Long Term Market Outlook
While guessing what is going to happen in 2013 is fun, it really isn’t of much value.
If I get much right it will be pure luck, nothing else. More important for our readers is what the long term outlook is. We believe that we are in a secular bear market for another two to three years globally. The markets simply do not offer the value that was once present only two, three years ago.
Yes things have improved.
The US housing market has rebounded. This will undoubtedly help the US economy. The banks have cleaned up their balance sheets. However in a world where the US and global consumer is still de-leveraging we do not see where the incremental demand will come from on the consumer side. Yes its true, equities are on a relative basis (especially compared to government bonds) the most interesting bet. Yields on many US & European companies are attractive and more importantly, the dividends are payable as balance sheets are strong.
But we think better opportunities lie ahead. The only value we see is in European financials where we are sufficiently exposed. So we at Le Monde Edmond have plenty of cash (more than 70%) to take advantage of a market correction.
Our advice: Stay defensive, stay diversified and wait for better opportunities going forward.
