Crystal ball was cloudy last year, but it had its moments
Making predictions is tricky, as Monitor’s record for 2013 shows. But we got it right in areas like US equities and the city property market
Archery as it's practised in big competitions like the Olympics is a dull business. With participants shooting stabilised carbon-fibre bows at a target just 70 metres away, there is no chance anyone will miss. Instead, competition hinges on how often archers slip up and place their arrows not in the gold bull's eye, but in the inner red ring of the target.
Far more fun is shooting an old-fashioned longbow at a target several hundred metres away. Scoring a hit is almost impossible. Even to come close you have to aim up at 45 degrees, which means your arrows ascend a hundred metres or more, where they can get blown wildly off course by random gusts of wind.
Making predictions in a business column is a similarly hit-or-miss affair. No matter how carefully you line up your arrows, they can still go astray.
So, as usual at the beginning of a new year, Monitor is going to look back at some of the predictions it made over the last 12 months to see which were on target, and which were wide of the mark.
On financial markets, Monitor's record over the last year has been patchy. Last January, the column argued that liquidity would be the driving force behind stock market performance in 2013.
With interest rates set to remain near zero and plenty of liquidity sloshing around Hong Kong's financial system, Monitor reasoned that the local stock market would make gains of around 10 per cent over the year.
Similarly, the column argued that the US stock market would shrug off fears over Washington's fiscal contraction, while a rapid credit expansion in China should help support its stock prices and international commodity markets.
The forecast of 10 per cent gains for Hong Kong stocks turned out to be overly optimistic. Although liquidity remained plentiful throughout the year, the city's benchmark Hang Seng index climbed just 3 per cent, with investors worried about the earnings outlook as mainland growth rates slowed.
The prediction of handsome gains in US stock prices proved closer to the mark. The S&P500 index shot up 26 per cent over the year as investors ignored political bickering over the US budget.
However, Monitor's argument that credit expansion in China would lift stocks and commodity prices was way off target. As the column acknowledged in April, "although China's credit engine is revving furiously, the transmission mechanism has been knocked out of gear".
As a result, rapid loan growth failed either to boost stock market sentiment or to generate stronger demand for industrial commodities. Over the year, the Shanghai composite stock index fell 7 per cent, while commodity prices softened.
Monitor was also off target when it came to the yuan. With the currency no longer looking undervalued, the column argued that the central government might slow its appreciation in order to support the export sector.
In the event, Beijing allowed the currency to continue strengthening, despite the damage inflicted on China's export competitiveness.
Happily, some of Monitor's other predictions were closer to the mark. The column warned early in the year that the bull case for gold didn't stand up. The metal ended 2013 down a painful 27 per cent.
In June, Monitor warned that Southeast Asian markets were facing a destabilising outflow of foreign funds, just before a 20 per cent slide in prices.
And the column also argued that the Hong Kong government's attempts to cool the property market would do nothing in the near term to make homes more affordable. Despite a punitive increase in stamp duties late in 2012, property prices still climbed by 3 per cent over 2013, leaving the city's housing less affordable than ever.
So at least some of Monitor's arrows hit their target.