Deutsche Bank
December 5, 2013

Capital Markets Outlook 2014: “The trees are growing, but not blossoming“


  • Economy: Developed nations will drive global growth
  • Equities: Gains globally, but less than in 2013 and with higher volatility
  • Bonds: Normalization of interest rates; real positive returns in a few markets
  • Foreign exchange: US dollar fundamentally strong
  • Alternative assets: No real estate bubble in Germany
  • Asset allocation: European equities are the top pick

In the view of the investment experts at Deutsche Asset & Wealth Management (DeAWM), the global economy is on a promising path. 2014 is set to be a solid year for investors in international financial markets. “The trees are growing, but not blossoming," said the Co-Chief Investment Officer and Member of the Board of Directors at Deutsche Asset & Wealth Management Investment GmbH Asoka Wöhrmann at a Frankfurt press conference on December 5 to present the market outlook for 2014. Europe was discharged from intensive care last year and is finally on the road to recovery. GDP is expected grow by 0.7 percent in 2014 in the Eurozone thanks to economic recovery in southern Europe, according to Wöhrmann.

Global economic growth next year should be generated primarily by the developed economies, above all the US. Provided it does not trip itself up with another shutdown, the US should be able to maintain moderate growth. Japan will play a more significant role than in previous years; but it must grapple with structural reforms in the third phase of Abenomics, as well as fighting deflation. With growth of 7.5 per cent, China will continue to supply a positive impetus for global growth.

“Overall, we expect it to be a solid year. We anticipate modest increases in capital markets, although not as big as in 2013. However, volatility is likely to be higher," said Wöhrmann. "We remain in a return trap. In these times of low interest rates and financial repression, investors must take some more risk with their capital. I do not foresee a bubble – neither for German equities nor real estate. DeAWM recommends that investors put an emphasis on equities next year."

The European Central Bank (ECB) will continue its low interest rate policy. “The ECB will play an influential role this coming year. In 2014 we will not see restrictive monetary policy, but rather consolidation in the banking sector – which has already happened in the US with more than 450 financial institutions being wound up. The term ‘Banking Union’ could well be one of the triggers of volatility in Europe. We expect inflation to be low, and there is no danger of deflation," said Wöhrmann. During the first quarter, the US Federal Reserve is likely to start tightening monetary policy through so-called tapering; that is, reducing its bond purchases. After a volatile spell, markets should be calmer during the second half of the year, which will benefit emerging markets. Interest rate increases are unlikely to return to the agenda in the US until 2015.

All of this does not make the situation in bond markets any simpler. G4 bonds, meaning debt issued by Germany, the US, the UK and Japan, will continue to offer very low returns; in some cases returns will be nominally positive, but negative in real terms. Zero interest rates will prevail in the money markets for about another two years. “Next year, four factors will be decisive to ensure a successful bond market investment: Rotation of asset classes, precise selection of bonds, good timing and keeping an eye on liquidity. Or put another way: active bond management," said Stefan Kreuzkamp, Co-Head EMEA (Europe, Middle East and Africa) Fixed Income. Within each asset classes, picking the right investments will be key in 2014. For instance, bonds with higher interest rates have a greater buffer against negative real returns. Consequently, corporate bonds look attractive relative to government debt; from a regional perspective, government and corporate debt from peripheral Europe, which pays higher rates than debt from core countries, also looks appealing. Carry and tightening – i.e. profiting from the normalization of interest rate spreads – continues to be an attractive strategy in the Eurozone. Sophisticated analysis is required for emerging markets fixed income, and country selection will be critical.

Henning Gebhardt, Head of EMEA Equities, is very positive about equity markets. He said: “In 2012 and 2013, equity markets were under the influence of risk aversion and normalization. This should change in 2014. Corporate profits will become the main driver of stock markets, which will give equities additional impetus over the coming 12 months." The fact that many investors are currently underweight equities in their portfolios will further support continued price increases. For most equity markets, returns of up to 15 per cent should be achievable. “There is no way to avoid European equities in 2014," Gebhardt said. In historical terms equities in Europe are still attractively priced, despite recent record highs on the DAX®, among other indices. Investors should consider cyclically sensitive sectors and therefore overweight equities in cyclical consumer goods, industrials and financial services. Similarly, small caps should benefit particularly from higher economic growth and, as such, should be favored over large caps. Investors should underweight companies that are exposed to interest rate changes, such as in the utilities and consumer staples sectors.

CIO View / Outlook 2014: Central banks – the power factor 

For further information please contact:

Baki Irmak
Phone: +49 (0)69 910 14547


Anke Hallmann
Phone: +49 (0)69 910 14546

Deutsche Asset & Wealth Management
With euro 934 billion of assets under management (as at 30 September 2013), Deutsche Asset & Wealth Management (DeAWM)¹ is one of the world's leading asset managers. DeAWM offers individuals and institutions traditional and alternative investments across all asset classes. DeAWM also stands for tailored wealth management solutions and comprehensive services to high-net-worth individuals and Family Offices.

¹ Deutsche Asset & Wealth Management is the brand name for the Asset Management & Wealth Management division of Deutsche Bank AG and its subsidiaries. The responsible legal entities offering clients products or services of Deutsche Asset & Wealth Management are listed in the respective contracts, sales materials and other product information documents.

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