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Investors plan for 2013

It emerged last month hat inflows into equity funds have reached a five-year high, as investors react to global markets soaring following the compromise deal on the US fiscal cliff. According to EPFR, the fund research company, net investment into equity funds in the first week of 2013 reached $22.2 billion worldwide – the highest level since September 2007 and the second highest since records began in 1996. At a sector level, net investments into emerging market and global equity funds are at record highs. The only sector failing to see larger inflows was European equities, which saw less than $1 billion invested worldwide last week. According to the Investment Management Association and emphasising the more optimistic view of investors, people have beenn rotating out of ‘safer’ assets such as government bonds since September.

This news came in a week when the FTSE 100 closed at 6,121.8, reaching levels last seen in May 2008. The rise of 3.8% in the first full trading week marks the best start to the year since 1999, as optimism increases over a US budget deal, easing eurozone tensions and signs of improvement in US and Chinese economies. Wells Fargo, the US bank, also kicked off the earnings season for the US by beating forecasts.Elsewhere around the globe, the S&P 500 in the US closed at a five-year high of 1,472, while Japanese equities stand at two-year highs after a weakening of the yen benefited the export-reliant nation – a position which prompted

Richard Oldfield, manager of the St. James’s Place High Octane fund to comment, “In Japan, we have got to one of those moments that, just possibly, in a couple of years’ time, could be looked back upon as a turning point.”

Given the positive economic sentiment of the last week, it was perhaps a surprise to see commodities slippin as copper fell 1.2% and crude oil slumped 1.6%. Further muddying the water over prospects for the global economy, some currencies that are usually highly correlated with a better global economic outlook were also in retreat; the Australian dollar, for example, gave back most of its recent gains. As ever, making sense of short-term movements is an extremely difficult task.

There are still, of course, challenges to be faced and it is important to keep focused on the bigger picture. As John Wood of J O Hambro Capital Management, joint manager of the St. James’s Place UK & General Progressive fund, pointed out recently, “At this time of year fund managers are often asked to call upon their crystal ball and make sage-sounding predictions about the year ahead. I suspect if I referred to my commentary from this time last year, its message would be roughly the same; the Western world remains in a multi-year period of structural deleveraging, meaning that material economic growth is going to remain elusive for some years to come.”

This was posted in Bdaily's Members' News section by James Barnett .