I have been reflecting on 2013 and have accumulated a number of key observations from the year which may be of some value in assessing how to invest in 2014 or simply be of interest to market watchers:

1)?Diamonds are a girl’s best investment?- The apocryphal tale of the Emir of Kuwait who was reputedly able to flee the Iraqi invasion of his City state with 80 percent of his net worth in a sack full of diamonds on his back has always been held out as one good reason for investing into gems as a store of value. The sale of the largest pink diamond ever to be graded at the end of the year to a mystery buyer for circa 80 million dollars would appear to strengthen the case but nothing more so than news from De Beers that finite supplies of the stones are forecast to last fewer than 20 years. The case for putting a large rock on your lady’s finger may never have been stronger.

2) Why I won’t be selling my newly acquired Gold and Silver anytime soon?- We live in a world where global debt – whether sovereign, consumer or corporate – is still perilously high, and yet interest rates are still pretty much at an all time low. The rationale for buying gold and silver has never truly been driven by low rates but conversely by the spectre of higher rates. The inflationary consequences of the largest monetary expansion in history are starting to manifest themselves in the UK and other economies around the globe. The US will follow suit. And, in due course, what is the weakest recovery from a recession on record could?afterall?just go and slip back into recession.

Certainly, in our view, the impact of tapering is going to fade into?the?distance in 2014, and the expectations of a robust recovery?will?consequently?dim. What is absolutely sure?however?is that as governments around the globe continue to print more and more money, the value of this paper money will continue to shrink. Expectations that the value of fiat currency will continue to shrink is what drives consumers the world over to continue to buy bullion, especially in Asia. It represents an insurance policy on governments’ pernicious strategy?of increasing money supply to reduce their liabilities. (Incidentally, according to BlackRock buying interest in small gold bars has?more than offset?the?selling by ETF investors in 2013).

3) Teachers get tractor fever?? In 2013, the Boston Consulting Group revealed that Agriculture was the world’s top performing sector in terms of annual total shareholder return between 2007 and end of 2011 with a return of 13 percent. The world’s largest institutional investor in agricultural land, TIAA-CREF (a pension fund manager for teachers in the US) announced in 2013 it had built up a portfolio worth USD 4.4bn since June 2012 encompassing more than 800,000 acres across 600 properties on four continents. 77.6 percent of its land holdings produce grains or oil seeds, and 16.2 percent produces sugar cane.

4) Hedge funds go retail?-?A number of large hedge fund firms started to look to retail investors??as advertising rules slackened and the industry continued to suffer from disappointing performance and absence of traditional buyers. Alternative mutual funds made a significant comeback attracting 20 percent of all new flows into mutual funds in the first 10 months of 2013 according to Morningstar. China joins the hedge fund party just as the last drunken guests leave the room – Hwabao Securities and Citic Securities Futures have both launched seeding funds and a hedge fund park has opened up in Shanghai. Whilst this late arrival to a sector still roundly out of favour may seem risible, do not underestimate the expansion plans of the Chinese asset management industry whose players we bank on seeing far more of in 2014.

5) MINT?- Jim O’Neil coins the “MINT” nations as McKinsey Global Institute points to the key top 10 drivers of global growth in 2012 to 2017 to include Mexico, Indonesia, and Turkey. Nigeria forms the third letter of O’Neil’s acronym. Frank Russell’s CIO called for an increase in emerging and frontier market allocations from 10 to 15 percent at their annual pension conference in June in anticipation of a change in the representation of EM in global benchmarks. (China is only 4 percent but should be 10 to 15 percent from a GDP perspective).

6)?Japan takes up the slack?-?Japan takes up the slack as the US announces the end of tapering. By the end of 2014 Japanese quantitative easing will take its balance sheet from 35 to 60 percent of GDP reported HSBC in April 2013. Markets most likely to feel the impact will be Thailand, Malaysia and Indonesia. However, China, Vietnam and the Philippines could be propelled forward by this balance sheet expansion.

7) The Chinese go burger crazy?- Chinese beef imports are predicted to grow by 19 percent in 2014 (FT Dec 12 2013). Beef prices have also soared to record highs as Chinese imports have risen to 500,000 tonnes a year from next to zero 5 years ago.

8) Nigerian shopping frenzy?- Nigeria’s federal capital gets it first shopping mall – The UN predicts that Nigeria will be home to 900 million people by 2100 rivaling China as the world’s second most populous nation after India.??South African retailer Shoprite, which currently has seven stores in Nigeria, sees room for up to 44 additional stores over the next three to four years. With the largest population in Africa, the oil-producing nation has been growing consistently at over 6 percent per annum for a decade and has one of the fastest rates of urban growth in the world.

9) Asian spring?– The mood for political change and a root a branch change in the old guard, in particular in countries where corruption is endemic,?has taken hold in countries as far afield as Ukraine, Thailand, Indonesia, Cambodia and South Sudan. In India there is a grass roots revolution underway with a former tax inspector and a reformist leader of the opposition BJP both standing for election in the forthcoming national poll. Some commentators are saying that if BJP candidate, Narendra Modi,?is elected there could be an “Abe style” rally in the markets that drives Indian equities into new territory. The currency may also enjoy a fillip. Analysts from Citi are pointing to earnings growth rising from 7.5% in 2013 to a target 15% in 2014 as confidence is restored.

10) There may be trouble ahead?- Alexander Friedman of UBS cautioned in the FT recently that “we are moving from a world of high returns and low portfolio volatility to a world of low returns and higher volatility”. Investors need to see “uncorrelated sources of return to meet their objectives”, he warns.

11) Asian fisticuffs?- Japan to reap any upside there may be. As the confrontation between China and Japan over the Senkaku Islands becomes increasingly belligerent, readers should note?that Japan’s claims to the sovereignty of the islands, whilst recognised for over a century by the Western World, have long been disputed by China, believing they are a integral part of the Chinese nation. China also lays claim to Tibet, Taiwan, parts of Bhutan, Nepal and India, and, according to their 2013 issue of new banknote?designs, much of the ocean that extends to the Philippines and Indonesia. Japan’s new found confidence is unlikely to be abated by Chinese provocations. The visits to the graves of war criminals by members of the government?however have?been a pretty regular occurrence since the 1980s.

12) Family Offices favour EM?- According to a recent paper from Fleming Family & Partners, one of the UK’s largest multi-family offices,?the landed gentry are making a comeback as?the favourite asset classes?in?a survey of 90 of the wealthiest families in the world on a 30 year view will be emerging markets equities, developed equities and agricultural land in that order.

13) Consultants- can’t live with them, can’t live without them -?In a shocking revelation that surprised nobody, KPMG revealed in April 2013 that in the UK, 80 percent of fully delegated fiduciary mandates are managed by investment consultants. In the first half of 2012, they won 30 out of 39 mandates out for tender (or not it would seem).

14) Brazil disenchantment to come back with a vengeance?– Bubbling disenchantment with the Brazilian economy could well turn to outright anger again after the euphoria of the World Cup wears off. The huge protests seen sporadically during the year, but in particular in June 2013, were brought about by the deep dissatisfaction felt by the members of the workforce who have not benefitted from the Brazilian dream as it has now started to dwindle. Commodity prices have fallen sharply (although our expectation is that these will pick up again in coming years) and inward investment from multi-nationals has fallen sharply. With elections scheduled for this year, and the World Cup likely to leave the country in a state of South African style malaise when the big event is over, expect the people to come back onto the streets with a vengeance.

Simon Hopkins, January 2014