The World Stock Markets that Captivated Us in 2014
Last year, it paid to be in stocks only if you were in the right world market. Stocks outperformed bonds in many world markets, but lost ground in others. In the U.S. the S&P 500 was up 11.8% on the year. But it wasn’t the best-performing major market in the world. We took a look at how some leading markets performed in 2014.
The China stock market was a superstar in 2014, with the Shanghai SE composite index up 52.9% on the year. The Chinese market was a Cinderella story in 2014, coming off of a rough 2013 as Asia’s weakest market and going on to book huge gains for investors. Even though the Chinese economy has been slowing down from the double-digit GDP growth rates seen a few years ago, and the Chinese real estate market is weak, action by the government, like November’s interest rate cut, and the prospect of further action, gave investors hope and propelled a huge Q4 surge in the stock market. One such innovative step was the launch of Stock Connect late in the year, allowing retail trading of yuan-denominated mainland Chinese stocks by non-Chinese, as well as access to Hong Kong stocks by accredited mainland investors.
Investors in Russia needed a steel stomach in 2014, and 2015 looks to be another volatile year for investors there. The 2014 return in the RTS.RS index of negative 3.4% was fairly tame in light of the shocks and uncertainty that hit Russia last year. The turmoil in 2014 was in part due to Russia’s annexation of Crimea, creating a crisis in international relations. Russian GDP growth has slowed down considerably from the pre-2008 years when it was above 5% a year. In the back half of 2014, it was less than 1%, hurt not only by U.S. and European sanctions but also by the collapse in the oil price. The Russian ruble lost roughly half of its value last year. At one point, Russian equities fell so far that Apple’s market value was larger than the entire Russian stock market’s equity value, according to data compiled by Bloomberg.
China surpassed Japan in 2014 as the world’s second-largest economy in 2014, but Japanese stocks hit their highest levels in seven years in November, thanks to the Japanese government’s stimulus program, nicknamed “Abenomics” after prime minister Shinzo Abe. The Nikkei returned 7.1% in 2014. The country is still struggling with a 20-year-long period of economic underperformance and it remains to be seen if Abe will fire his so-called “third arrow” of structural economic reform. If political opposition ties his hands, some commentators think the first two “arrows”, which are largely short-term, one-time measures, won’t be enough to lift Japan out of its chronic underperformance. And that would probably translate into a sagging stock market pretty quickly.
Hong Kong’s stock market is the sixth largest in the world, which is one reason the launch of share-trading program Shanghai-Hong Kong Stock Connect was a big deal for its markets in November 2014. The program is expected to facilitate billions of dollars in cross-border transactions and open up the mainland’s financial markets. The program also lets Hong Kong and international investors trade selected stocks on the restricted Shanghai stock market. Stock Connect was one reason the Hang Seng index returned 4.5% last year.
Most European markets fell in 2014, reflecting the continent’s weak economic growth, continuing problems in the banking sector and concerns over the future of the euro. In Britain, for example, the FTSE-100 fell 2.7%, as investors worried over very low inflation and the declining price of oil and other commodities. The Frankfurt stock market index eked out a gain of 2.25%, reflecting Germany’s strong economic growth but nonstop concern over whether the economies of its major trading partners in Europe will overcome their challenges. The CAC-40 index in Paris fell 0.8% as France struggled with high unemployment and the Socialist government of Francois Hollande appeared to shift from a policy focused on equality (i.e. higher taxes on the rich and more state spending on job programs) to a more right-wing policy (not yet clearly defined) under the leadership of tough new prime minister Manuel Valls.
Another big concern in the European markets last year was Greece’s struggle over its international bailout package, and late in the year news of another Greek election raised fears that a left-wing victory there might derail the country’s EU membership, sending the Athens Stock Exchange tumbling by a gut-wrenching 33.6% for the year. A crisis at Portugal’s Espirito Santo Group made investors worry about the stability of that country’s financial system as well.