For the first time in several years, we have approached the New Year with no major
dark cloud on the horizon.
In the United States, aggressive
monetary policy has healed many
of the wounds of the 2008-09
financial crises. Individuals have
reduced their debt service costs,
the housing market is now in full
fledged recovery and the banking
system is gradually getting healthier — the balance sheets have been
repaired and the legacy bad loans
are getting under control.
US corporations seem to be flush
with cash and profits and this can
lead to an increase in dividends,
stock buy backs and acquisitions.
Even the US budget deficit is
looking better — it has fallen to 4
percent of GDP this year from a
high of 10 percent.1
To that end, we’re seeing a positive outlook for the global economy, yet investors are cautioned to
consider the potential risks in the
year ahead. Having an understanding of the implications of
these macro trends will enable
investors to position themselves
for the opportunities in addition to
investing in longer-term transformational trends arising from technological innovation and demographic shifts.
Despite this expected improvement, the inflation outlook is remarkably benign in
the developed world while a few emerging markets
like India are still grappling with price increases,
largely attributable to currency weakness. The much
dreaded ‘tapering’ by the Federal Reserve may start
sometime next year, but the process is expected to be
slow and measured.
On the strategy front, we believe that the great rotation from bonds to equities has begun. Over the past
year, investors have poured money into stocks and we
have started to see outflows from bonds. The 30-year
bull market bonds seem to be approaching an end
and investors should carefully assess their interest
rate exposure as well as their overall asset allocation.
Looking overseas, as Europe emerges out of its
recession and Japanese growth kicks into high gear,
investors should find attractive values in both these
markets. However, investors may want to consider
hedging their foreign exchange positions in view of
our positive outlook for the US dollar.
In terms of emerging markets, we believe that
opportunities may fall outside of the BRICs — Brazil,
Russia, China and India. It is important to start differentiating emerging markets as opposed to viewing
them as one homogenous asset class. Active management and country selection will increasingly become more
important in emerging market investing.
As always, your portfolio should be customized to reflect
your income needs, time horizon, liquidity needs, risk tol-
erance and financial goals and we suggest consulting your
advisor to ensure you are on track.
Wish all of you a New Year filled with peace and happi-
Sunnier skies for 2014
In terms of emerging markets, this year’s opportunities
may fall outside the BRICs — Brazil, Russia, China and India.
Raj Sharma, Managing
Management, is a Private
Wealth Advisor for the
Private Banking and
Investment Group at Merrill
Lynch, Pierce, Fenner &
Smith, Incorporated, a
er, member SIPC, and
a wholly-owned sub-
sidiary of Bank of
Any information presented in connection with BofA
Merrill Lynch Global Research is general in nature and not
intended to provide personal investment advice. The information does not take into account the specific investment
objectives, financial situation or particular needs of any
specific person who may receive it. Investors should understand the statements regarding future prospects may not
Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value
This information is general in nature and not
intended to provide personal investment advice. The
information does not take into account the specific
investment objectives, financial situation or particu-
lar needs of any specific person who may receive it.
Investors should understand the statements regarding
future prospects may not be realized.
Investing involves risk, including the possible loss of
principal. Equity securities are subject to stock market
fluctuations that occur in response to economic and
Raj was recognized in 2013 by Barron’s in their Top
100 Financial Advisor list and has received this recognition for ten consecutive years. Raj Sharma can be
reached in his Boston office at (800) 926-5579 or
Source: Barron’s “Top 100 Financial Advisors,” April
13, 2013. For information about the selection criteria,
go to www.barrons.com. Barron’s is a trademark of
Dow Jones & Company, Inc. All rights reserved.
January 10, 2014