European shares crept higher in a short day of trade today before the New Year break, with pan-European indexes set for their biggest annual gains since 2009 and many investors forecasting more progress next year.
The stock market rally still faces risks from factors such as a possible spike in bond yields or a rise in the oil price from civil unrest in the Middle East and Africa.
But traders expect the gradual recovery in the world economy to continue to support equities in 2014.
Trading volumes were extremely low today as many European stock markets including Germany, Italy and Switzerland had already closed for 2013 yesterday. The London, Dublin, Paris Madrid, Amsterdam, Brussels and Lisbon markets closed today at lunchtime.
The rally in Europe has lagged bigger gains in US and Japanese stock markets in 2013, and some traders and investors felt ongoing divergences between European economies could lead to more relative underperformance next year.
Overall, European shares have rallied as investor worries over the euro zone’s debt crisis abated, and the European Central Bank and the U.S. Federal Reserve injected liquidity into financial markets.
Earlier this month, the Fed announced it would slightly trim its huge monetary stimulus programme, but investors have taken heart from stronger US economic data and a commitment from the Fed to keep interest rates low for longer.
While the Frankfurt DAX has hit record highs this year, other European equity indexes remain a long way from peaks hit in 2007, reflecting how Germany’s economic recovery has been stronger than that of its European neighbours.
France’s CAC equity index still needs to rally about 44% to reach highs hit in 2007, before the start of the global financial crisis, while Spain’s IBEX must gain 62% and Italy’s FTSE MIB 134%.