Where in the world to invest for a happy new year

Opinions vary, but the economic forecast for 2014 is generally optimistic. We ask the experts for tips on the growth areas

The start of the new year is a time to focus on making a few changes in your life. And for savvy investors that should mean an opportunity to rejig your portfolio. The past year has been good for stock markets, with the FTSE 100 rising by 15%; the wider FTSE All-Share going up by 17%; and the US S&P 500 soaring by 27%. Predicting how markets will perform in 2014 is difficult. "But there are plenty of optimists who believe further gains can be made by picking the most promising regions as economic recovery takes hold," says Adrian Lowcock from financial adviser Hargreaves Lansdown. Here are some expert tips.

The UK

Most analysts and fund managers believe there is still potential to make money from UK shares as economic conditions improve. Some are even predicting that the FTSE 100 will hit a new all-time high in 2014, surpassing the 6950 it reached at the height of the dotcom boom in December 1999.

Guy Foster from stockbrokers Brewin Dolphin forecasts that the FTSE 100 will reach 7400 by the end of 2014. Capital Economics, meanwhile, says that the FTSE 100 could hit 7200, while analysts at Citigroup expect the index to reach 8000 next year as fears about a break-up of the eurozone recede while conditions for companies improve. However, not all experts share this optimism.

Jason Hollands from investment adviser Bestinvest sounds a note of caution. "Household debt has been rocketing while the amount people are saving has slumped against a backdrop of ultra-low interest rates," he says. "Even a small rise in interest rates could prove a shock for the economy and the market." Brian Dennehy of FundExpert.co.uk adds: "If the over-valued US stock market slumps it could bring most, if not all, global markets down with it. Also, if bond markets end a 30-year bull run, then all markets could take fright."

To spread risk you could invest through a pooled fund holding a variety of UK shares and sectors. Hollands recommends Liontrust Special Situations, which invests across a range of small, medium-sized and large companies, while Patrick Connolly from financial advisers Chase de Vere favours Cazenove UK Opportunities, Investec UK Special Situations and Rathbone Income.

Europe

Europe is the region most widely tipped to outperform in 2014, according to a survey by the Association of Investment Companies, despite it including plenty of out-of-favour countries such as Greece and Ireland. "All of the negative sentiment surrounding the eurozone doesn't change the fact that many of its companies are performing well, making profits and have large amounts of cash on their balance sheets," says Connolly.

He adds that 50% of European company revenue comes from outside of Europe. Lockcock says: "As the fear of euro-collapse recedes, European fund managers have been increasingly turning towards companies which are more likely to benefit from a recovery in Europe."

However, Connolly warns that European shares are the most vulnerable to shocks in the global economic recovery, and a huge debt burden remains. If you want to take a punt on Europe in 2014, Mike Green, Investment Service Manager at Cavendish Online, says a good pick is Ignis European Smaller Companies. "This has performed consistently well," he says. Meanwhile Lowcock likes Threadneedle European Select and Henderson European Special Situations.

Emerging markets

Some emerging markets could stage a comeback, say experts. Thomas Becket, chief investment officer at PSigma investment managers, points towards China as offering opportunity for investors next year, as it is "under-valued, under-appreciated and under-owned".

India is the favourite for Dennehy. "There is an election next year, and a sense that a pro-business government might take power, a unique positive.

"Also, the new boss of their central bank has pleasantly surprised observers with an outline of much-needed reforms, and India has a huge youthful population which can spur economic growth over the long term."

Edward Bland, director and head of research at Duncan Lawrie Private Bank, also picks India for 2014. "It will be a very interesting year that could potentially set the course for the next decade," he says.

However, Darius McDermott, from execution-only brokers Chelsea Financial Services, favours Brazil, believing it could benefit from hosting the World Cup. "The feelgood factor may lift both spirits and the market in the short term," he says.

Investors should see all emerging markets as a long-term growth story rather than offering potential for swift gains, stresses Kerry Craig, global market strategist at JP Morgan Asset Management. "The next year might still be rocky for many of these economies, but there is no denying their importance in global growth," he says.

To spread your bets among different emerging market economies you could opt for a fund such as Schroder Global Emerging Markets or JP Morgan Emerging Markets, says Connolly.

Japan

Its market stormed ahead in 2013 and many experts believe it will continue to thrive. Last month marked the first anniversary of Shinzo Abe's election as prime minister, and it was his economic recovery plan, dubbed Abenomics, that put Japanese shares among the best performers over the past year.

However, shares remain about 50% below their peak in December 1989, suggesting there is further room for growth. Becket says: "Next year we think it could be the year of the Asian equity; a continuation of Japan's stock market renaissance.

"You almost certainly won't get the fireworks that we enjoyed in 2013, but there is absolutely no reason that markets can't appreciate by a further 15%." McDermott also favours Japan and likes GLG Japan Core Alpha, while Becket likes Lazard Strategic Japanese Equity.

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