Equity markets grew in 2013, reacting to economic decisions of countries’ governments and corporate performance, as well as on major political events, to put investors mostly in a positive mood. Central banks’ monetary policy was among the strongest drivers of the market growth. Technological innovations pushed the markets too. Our list starts with the QE3 tapering by the Federal Reserve System – American central bank – that celebrated its 100th anniversary in 2013.
1. QE3 (quantitative easing three) tapering in U.S.
On Dec. 18, the Federal Reserve announced
it would start tapering the third round of quantitative easing – a stimulus
program consisting of buying bonds with newly-created money and keeping
interest rates near zero – to $75 billion a month beginning in January. Before
this, the Fed had been spending $85 billion monthly on purchasing
mortgage-backed securities and treasuries. This became an unprecedented
stimulus program to help economy recover from the worst recession since the
1930s. Given QE3 tapering, borrowing money for countries like Ukraine will become
more expensive. Besides, flow of portfolio investments in Ukrainian assets will
decrease as investors are losing access to cheap capital in the U.S.
2. Yellen to become Federal Reserve System’s chairman
Janet Yellen, number
two on the Federal Reserve’s board of governors and a traditional American
Keynesian, was nominated by the U.S. President Barack Obama to become next Fed’s
chairman after Ben Bernanke leaves the position in 2014. Yellen will become the
first woman to lead the Fed. Concern for the unemployed will be the main leitmotif
of her chairmanship.
3. European Central Bank’s stimulus program
European Central
Bank on Nov. 7 cut its benchmark interest rate to 0.25 percent, a new record
low. While the Fed is reducing the scale of its monetary support, given obvious
improvements in the U.S. economy, the European Central Bank has to expand own stimulus
program as the eurozone’s economic growth does not meet the desired rate. This
may affect Ukraine – weak
euro will make Ukrainian export to the countries of the eurozone less
profitable, but European goods (for example, cars) imported to Ukraine will
become cheaper. Besides, owners of euro-denominated deposits in local banks may
feel themselves a little nervous.
4. End of deflation in Japan
Abenomics –
economic policy pursued by Prime Minister Shinzo Abe – has been a successful
strategy to stop deflation, the biggest challenge for Japanese economy during the
recent years. Japan’s
inflation rate in 2013 became fastest since 2008. Besides, Bank of Japan
launched a package of stimulus actions – $1.4 trillion to be injected in
country’s economy in less than two years. Weakened yen provides support for the
Japanese export though puts pressure on the wages. Improving the economic
situation is never easy.
5. Reforms in China
China’s new leader Xi
Jinping announced the most ambitious set of reforms for decades. It includes
more market pricing (prices are to be liberalized in oil, gas, power
transportation, and telecommunications), introducing more private capital into
the banking system with the overall role of private enterprises essentially
expanded.
6. Crisis in Cyprus
Cypriot banks’
problems with liquidity began after heavy investing in highly problematic Greek
securities. In March, Eurogroup, European Commission, European
Central Bank and International Monetary Fund agreed a 10 billion-euro bailout
deal for Cyprus.
To get this money and to preserve all insured deposits under 100,000 euros,
local authorities had to shut down Laiki Bank and to put a 40 percent levy on
uninsured deposits in Bank of Cyprus. Majority of the deposits over 100,000
euros at these banks were owned by Russian beneficiaries attracted by low taxes.
Ukrainian companies kept their money in Cypriot banks too and thus had to
transfer them to other offshore accounts. Such an attitude of world financial
authorities towards crisis in Cyprus
demonstrated they are not going to provide full bailouts endlessly. But in any
case, eurozone survives without losing any of its members and with Latvia joining it
in 2014.
7. Russia’s Capital Outflow
Russian central
bank expects country’s net capital outflow reach $70 billion in 2013, which
exceeds previous year by 28.2 percent. High taxes, fears for property rights, lack
of investment opportunities and political uncertainty push companies doing
business in Russia
take their savings elsewhere. As a result, even status of one of the world’s
major energy suppliers does not allow country to have a budget surplus.
8. Twitter’s IPO
Twitter completed a
successful initial public offering, with its share price up 73 percent on the
first day of trading. The company sold 70 million shares, raising $1.82 billion.
At that price Twitter was valued at $24.9 billion while company generates only
$500 million in revenue and has no major physical assets. Investors appear to
have a strong faith in the innovation brought by Twitter that is changing the
way the world communicates.
9. Nobel Prize in Economic Sciences awarded to experts
in finance
Three American
economists – Eugene Fama, Lars Peter Hansen (both from the University of Chicago)
and Robert Shiller (Yale
University) – shared the
2013 Nobel Prize in Economic Sciences. These financial experts “laid the
foundation for the current understanding of asset prices. It relies in part on
fluctuations in risk and risk attitudes, and in part on behavioral biases and
market frictions,” the Royal
Swedish Academy
of Sciences said in a statement.
10. Bitcoins
Introduced in
2009, bitcoin – an online currency run on cryptographic software and popular among online
drug dealers – gained respectability in 2013 and was finally accepted by major
services. Its price is highly volatile – in January it was at $15, then went
above $1,200 in early December and fell under $600 a week later. Although, even
Fed’s chairman Ben Bernanke mentioned, bitcoin “may hold long-term promise.”
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected].
