2014 predictions: What will be the next moves in the great stock market game?

Shares have had a bumpy 2013 but the Footsie still made gains. Laura Chesters, Julian Knight and Jamie Dunkley look back at the highlights and lowlights, and seek experts’ views on the year ahead

Investors dodged a few bullets in 2013 (Facundo Arrizabalaga/AFP/Getty Images)

Investors dodged a few bullets in 2013. Eurozone crisis, slowing growth in the emerging economies through to the triple-dip recession that never was, 2013 seemed to be set up to be a bit of a stinker. But the FTSE 100 made steady progress, and is up more than 13 per cent.

But it is yet to mirror the US, where the Dow smashed its previous all-time high this year. The Footsie’s record high was 6930.2 on December 30 1999.

Experts still expect to see further gains for blue-chips into 2014 but it is the smaller listed stocks that have been the real winners this year. Jason Holland at Bestinvest says: “Large-cap UK stocks have lagged mid and small-cap shares, whose earnings have a greater exposure to the domestic economy, and that is likely to continue in the near term.”

Meanwhile, Alastair Winter at Daniel Stewart says: “The very large resources component of the FTSE 100 – which has held it back this year – looks like being its saviour in 2014. This is because world output is set to rise enough to push up demand for the raw materials that resources companies provide.”

Here, we pick the risers and fallers, while, below, five leading market watchers tell us what lies ahead for investors in the new year.

Winners: Airlines flying high

IAG (up 117.32%)

British Airways owner IAG has combated issues at its Spanish arm, and analysts credit it with a good consolidation strategy. Liberum Capital said it has had “clear advantages over peers”. But it still faces “persistently high fuel prices, airport charge inflation and low-cost airline competition”.

Easyjet (up 99.09%)

The budget airline was a star in 2013 under Carolyn McCall, delivering 62 per cent earnings growth. Ms McCall’s package included a £665,000 salary, £4.5m in long-term bonuses and a further £1.1m bonus. Investec thinks the airline will remain a high-flyer for shareholders.

Hargreaves Lansdown (up 93.9%)

Investment adviser and broker Hargreaves Lansdown made its way through the year in very good shape despite concerns about the impact of new investment regulation, the Retail Distribution Review. Its recent first-quarter update showed it is increasing market share and had £39.4bn of assets under management.

Losers: Miners in a hole

Fresnillo (down 61.1%)

Investors in metal diggers want to forget 2013. Mexican gold and silver miner Fresnillo has borne the brunt of plummeting gold and silver prices, and analysts expect its development programme of new mines to weigh on it in 2014. Sanlam Securities said Fresnillo will have “to work much harder to maintain its position and grow”.

Randgold (down 36.35%)

This Africa-focused miner has also relied on cost-cutting and raising production to cope with a slump in the gold price, and managed forecast-beating results last month. But that was too late to help its share price. It opened its Kibali mine in the Democratic Republic of Congo ahead of schedule but analysts fear instability in the country could still hit Randgold.

Antofagasta (down 35.69%)

Fears of an oversupply of copper have hurt prices. Antofagasta has spent most of the year trying to adjust costs. It recently said it does not expect a further increase in costs in 2014 but data this month revealed copper supplies were at their lowest since January.

Jonathan Sudaria, analyst, Capital Spreads: Prepare for a bumpy ride in the second half as central banks turn off the taps

Could the good times be returning? Recent research undertaken by Capital Spreads indicates that major City investors have an increasing sense of optimism about the UK economy for 2014. However, austerity remains in force and the UK is still heavily dependent on domestic consumer spending. With infrastructure under strain and a large deficit, the UK still faces considerable structural and economic challenges.

However, positivity around economic growth looks set to seep into other areas, with the M&A market benefiting from renewed activity and IPOs likely to continue apace. In the equity markets, despite some pre-Christmas slowdown, the bulls have been in the ascendant – 2014 will be a similar story albeit one increasingly influenced by the actions of the major central banks. January sees the start of Janet Yellen’s chairmanship at the US Federal Reserve and one of her main jobs will be to reassure the markets, particularly the emerging markets, that the global economy will continue to thrive without quantitative easing. As the QE taps are slowly turned off, uncertainty will grow, so expect the second half of 2014 to be a bumpy ride, when the artificial liquidity pump finally ceases operations.

By 31 December 2014, we expect the FTSE 100 to be 7,400.

Brenda Kelly, chief market strategist, IG: Global growth is likely to strengthen, with the US leading the rest of the world

The consensus view suggests that global growth is likely to strengthen in 2014, with the US leading the rest of the world.

The developed world should fare better than emerging markets and the UK economy is forecast to grow by 2.4 per cent in next year – the fastest rate of expansion since 2007. This may bring about wage growth and increased consumer confidence. Domestically, the UK retail sector remains a little problematic, mainly due to the wage growth issues. While we saw a 2 per cent increase year on year in retail sales, there is still some way to go to recapture the levels seen pre-crisis. The FTSE 100 has underperformed, due to the mining sector this year – improvements in China particularly in respect of industrial production, along with better prospects for an uplift in housing and construction domestically and globally, could see this reversed.

Recent trends in US housing, with new homes rocketing up 22.7 per cent to a five-year high, may well kick off a trend for the new year. The promise of record low rates from the Fed should ensure that the momentum keeps pace. The banking union and the stress tests in the first quarter will likely weigh on some of the banks in the first half.

We have a 7,200 year-end target on the FTSE 100.

Tim Drayson, Head of Economics, LGIM: The chance of synchronised global growth could pose major questions

Despite the debt overhang, the world economy has finally shown signs of embarking on a recovery, with global growth reaching trend for much of 2013.

Monetary policy has been a major support with central banks committing to maintaining exceptionally low interest rates and, in the case of Japan and the US, delivering further quantitative easing.

There have been a number of headwinds preventing a stronger rebound, most notably the lingering effects of the European sovereign debt crisis. Yet the euro area returned to growth in the spring and the UK has seen a turnaround, led by a revival in housing.

The US has grown moderately. However, across the advanced economies progress has been made in reducing budget deficits and this should allow the degree of austerity to abate. We expect steady global growth through 2014. US growth should improve, but this is likely to be offset by a slowdown in Japan and we expect further cooling in China.

For the first time since the financial crisis, there is a realistic prospect of a synchronised global expansion. This could raise questions about how long central banks can maintain these levels of monetary accommodation.

We expect the FTSE 100 to end the year at 7,200.

Paul Kavanagh, chairman, Killik Capital: Record high will be reached thanks to US growth, with small-caps to rise

The FTSE 100 index will be at a record high of 7,400 by the end of 2014. We expect equities to enjoy another good year, driven by above-average growth in the US and stabilisation in the eurozone and China.

Although there are still risks, ongoing loose monetary policy highlights the relative yield attraction of equities, while mergers and acquisitions could be more of a supportive feature. I favour UK small-caps. They have performed well in 2013, and we believe there is scope for continued outperformance in 2014.

The universe provides exposure to faster-growth companies, where there is a greater prospect of M&A. As for large-cap UK stocks to look for, Rolls-Royce, HSBC, Unilever, InterContinental Hotels and housebuilder Berkeley stand out. In Japan, the first two “arrows” of Prime Minister Shinzo Abe’s growth strategy (fiscal and monetary stimulus) have stirred the economy.

Despite the rise in the equity market, valuations do not appear overstretched, and a number of catalysts for progress remain. China is a choice for the brave but its reforms should help its economy have a greater reliance on domestic consumption and services. Chinese equities, and companies with an exposure to China, should perform well next year.

Josh Ausden, editor, Trustnet: 2014 will be a year when some bullish investors come back down to earth

The mood with fund managers is increasingly bullish at the moment, and the majority believe the psychological 7,000 barrier for the FTSE 100 will be broken in 2014.

There is no doubt that the economic climate is improving, and I believe improving sentiment and a quiet calendar in the first quarter will indeed send the index to an all-time high early next year. That said, I think we’ll see a significant market correction in 2014 – not a crash on the scale of 2008 – but a significant one nonetheless.

We haven’t seen a big drawdown since the summer of 2011, and if history is anything to go by, we’re due one. Valuations are far from cheap and so a breather is on the cards anyway, but unwelcomed effects of QE tapering and possible rumblings in the eurozone could provide a catalyst in the third or fourth quartile.

Overall, therefore, I think the FTSE 100 will be higher than it is today, but I think a low single-digit return for the year is most likely. Another thing history has shown us is that corrections often occur when investors are at their most bullish. Complacency seems to be creeping in, and I think 2014 will be a year when some investors come back down to earth. I expect the FTSE 100 to end 2014 at 6,950.