Currency, Stock Market and Financial forecasts

The US dollar is expected to strengthen next year while the euro and yen head in the opposite direction. This is because of the expected taper.

Closer to home, the appreciation in the yuan versus the greenback is tipped to slow after lasting for more than eight years.

As for the Fed, analysts remain divided on when they think it will start to wind down its monthly bond purchases – a process known as tapering.

But they agree that when tapering does start, the dollar will strengthen.

Mark McFarland, global chief economist at Coutts, sees tapering starting by March – at the earliest.

Economic data coming out of the United States could make the currency volatile.

One factor adding to the volatility could be a continued slide in the unemployment rate, not because more jobs are being created but because more and more baby boomers are entering their twilight years, McFarland noted andBruce Yam Hiu-ping , foreign exchange strategist at Sun Hung Kai Forex, concurred. But he adds that the Fed has no choice but to start tapering next year, for the prevailing liquidity could induce a bubble.

Also working in favor of the greenback is the discovery of the large amount of shale gas in the United States that is likely to boost the world’s largest economy.

In addition, rising earnings at several global tech behemoths, based mostly in Silicon Valley near San Francisco, is poised to help the greenback maintain a firm tone next year, Yam said.

Yam believes the recent strength in the euro is unlikely to be sustainable. There would even be a high possibility of the euro plunging to US$1.20 against the dollar next year, if it dips below 1.275, a key level of support, said Yam.

McFarland expects the euro to dip below 1.30 again. Loan growth in the euro zone is still negative and there is a risk of deflation, so the European Central Bank may have room to further cut rates, he said.

As for yen, Johanna Chua, Citibank’s chief economist for Asia Pacific, sees it weakening to 105 against the dollar, as the Bank of Japan continues to purchase assets to boost liquidity.

Gold down to about $1000

The price of the precious metal is expected to ebb as the US economy continues to rebound.

Gold is forecast to fall to as low as US$1,000 per ounce next year, analysts have warned.

Hong Kong and China stock markets up because of China’s Reform Move

The outlook for Hong Kong stocks is much more solid than property after the mainland leadership outlined far-reaching economic reforms last month. Standard Chartered (2888) – which has one of the most bullish views on local equities – expects the Hang Seng Index to reach up to 28,000 points, a 17 percent upside, by next December.

Erwin Sanft, head of China and Hong Kong equity strategy at StanChart, says local stocks will continue to benefit from the reform blue-print issued at the third plenary session of the Communist Party’s Central Committee last month.

“Sentiment has improved among investors,” said Sanft, who likes Hong Kong-listed mainland energy, industry, raw material and automobile firms.

Retailers, developers and insurers from across the border are also his favorites. But he prefers to avoid telecom and infrastructure plays as they have high valuations.

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