A financial review of 2013

Its been an eventful year in the world of finance in 2013, with interest rates hitting a record-low of 2.5%, volatility in the Australian dollar and the share market hitting highs and lows.

Ripples caused by the GFC continued to flow through the global economy. This has heavily impacted the confidence of consumers and businesses, with European debt troubles playing on investors’ minds, while the US Federal Reserve’s bond buying program has acted as a stimulant on markets around the world.

Off to a strong start

Leading into 2013, the Aussie dollar was buying around US$1.05c and the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) was rallying strongly. Between July 2012 and May 2013, the benchmark index had climbed an incredible 31% from just below 4000 points to 5250 points. However, issues related to the situation in Europe (concerns regarding Cyprus, Greece, Italy and Spain) began to plague investor confidence, as did the fast-approaching US debt ceiling. The closure of the US government also impacted global markets, which dropped amid fears the world’s largest economy would breach its debt ceiling.

The Australian dollar drops

After spending the better part of two years above parity with the US greenback, the Aussie dollar fell to just above US90c. While this was seen as a good thing for companies such as BHP Billiton (ASX: BHP), Fortescue Metals Group (ASX: FMG) and Crown Resorts (ASX: CWN), it spurred the selling of Australian shares by foreign investors. Interest rates were also cut to an all-time low of 2.5%, which further acted as downward pressure on the currency.

A fresh 5-year high

Despite its rollercoaster ride, the ASX 200 achieved a fresh five-year high of 5457.3 points in November. It was downhill from there, as a flurry of IPOs failed to add a spark to the market, which resulted in the poorest start to December in 40 years. This was exacerbated by fears that the US Federal Reserve would begin to reduce its stimulus measures.

However, global markets reacted positively when the Fed announced that they would indeed begin tapering. While they announced that they would reduce their bond buying from US$85 billion per month to US$75 billion a month, they stated that any further tapering would be gradual and dependent on positive data, which substantially eased the markets’ concerns.

Foolish takeaway

The benchmark index began the year sitting at 4671.3 points and is now sitting at 5327.2 points, with just two and a half trading days remaining for the year. This reflects an increase of just over 14%. While we have no way of knowing whether 2014 will be as successful for investors, by investing in quality companies trading at discounted prices, you stand a great chance of achieving market-beating returns in the long-run.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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