The markets moves in 2013 were driven by 2 key themes: concerns over QE tapering by the US Fed and the sharp improvement in growth prospects in advanced economies led by the US.
Great rotation in equities
DM was the flavour of the season, with US and Japanese equities rising ~30% and 57% respectively. Meanwhile, EMs posted a relatively weak performance.
Broad based sell off in bonds
Fed QE tapering concerns triggered a global debt market selloff. The US 10Y yield spiked ~1.3%, while EMs like Indonesia with high FII debt holdings saw a more than 3% rise in benchmark yield.
Volatile trading in FX markets
Dollar performance against EMFX was in sharp divergence compared to DM counterparts. Euro was a major gainer, while Yen was pressured heavily by BoJ policies. EMFX sold off particularly in high current account deficit economies.
Gold loses sheen
The key theme within commodity space was the reversal of a more than decade-long rally in Gold. The bullion witnessed highest annual loss in ~32 years. Meanwhile, Brent crude prices remained largely stable, though periodic spikes were attributable to geopolitical tensions.
In conclusion, the markets have digested the Fed taper and are entering 2014 with a semblance of stability. The underlying fundamentals warrant a continued outperformance in DM equities. However, any shift toward aggressive taper remains a key risk to financial market outlook.
Please refer to the attached document for the detailed report.
Regards,
ICICI Bank : Treasury Research
Contact:
Samir Tripathi
+91-22 26537233
Kanika Pasricha
+91-22 26531414 (ext 2260)
