2013 – 4th quarter update

Following on from passing 6,000 on the first day of trading for 2013, the FTSE 100 peaked at 6875.62 on the 22nd May 2013 and at the time of writing the FTSE 100 stands at 6733.34. So as we look back over 2013, what has happened?

The US did not fall over the fiscal cliff: 2013 started amid Washington intrigue over looming automatic tax rises and spending cuts. Also the US did not default on its debt: Nine months into the year there was case of political brinkmanship, which ended with a decisive defeat for the Republicans who had pushed it. The President is unpopular, but there was no public support for the use of a threat to force a default on US sovereign debt as a political weapon. Inflation remained under control: Expectations for US inflation, after a brief move upwards, are now comfortably lower than they were last Thanksgiving.

The Eurozone avoided another crisis: And it did so despite ample opportunity. The response to the Cyprus crisis in March, when an attempt was made to impose losses on insured bank deposits, was badly botched. There is ongoing political turmoil inItaly. Yet sovereign debt markets remain calm, and there are even signs that the region’s economy is moving towards a (weak) recovery.

Appropriately on the run up to Christmas, Turkey has reason to be grateful. Its currency has been hit in the past year, and the yield on its bonds has risen, reflecting international concern. Yet its stocks are up almost 10% in local currency terms.

China’s economy stayed on the rails: The bubble in China’s real estate did not burst. Growth, according to official data, remained on track. Japan’s incredibly aggressive monetary policy sank the yen, but did wonders for the stock market.

Iran’s relations with the rest of the world improved: the risk that either Iran would successfully build a nuclear bomb, or that Israel would be provoked into attacking Iran to avert this, has been at the top of “risk lists” for a decade. The negotiated agreement to freeze Iran’s nuclear program, while controversial, is great news for geopolitical risk.

In theUK, against a backdrop of quite encouraging economic data, Chancellor George Osborne delivered his Autumn Statement. The economy is looking better, as growth returns and GDP is expected to increase by 2.4% this year. The surprise announcement was the abolishing of the Employer’s National Insurance for all employees aged under 21 from April 2015 and should help to address the problem of youth unemployment. The main announcement in relation to personal income tax is that married couples may now be able to transfer £1,000 of their personal allowance to a higher earning spouse, although this will not apply to higher rate taxpayers. The headline grabber is that non-residents will now have to pay capital gains tax (CGT) on UK Property from April 2015. This could affect house prices in London going forward though and may go some way to dampening what was considered to be an over-heated market. There were also changes to the rules for those properties which you no longer live in but were once your main residence, meaning more CGT will be due when you sell.

We have been saying for some time now that relying on the State for your pension is not ideal. State Pensions Ages will increase to 68 from about 2030 and then to 69 ten years later. We have always encouraged our clients to take matters onto their own hands and make their own provisions. The good news is the current pension tax regime has remained unaltered.

We believe that 2014 will be a good year all round, producing better returns overall than this year.

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