Stocks in 2013: Get defensive

Click chart for more market data

NEW YORK (CNNMoney)

According to more than 30 investment strategists and money managers surveyed by CNNMoney, the S&P 500 should finish 2013 at 1,490, up 4.5% for the year. While that's not anything to scoff at, it's a far cry from last year's 13% increase.

Investors are facing a number of headwinds, not the least of which is the ongoing uncertainty out of Washington. But experts are primarily pinning their modest forecasts to a slowdown in earnings growth.

It's that very concern that's made ING Investment Management chief market strategist Doug Cote less of a bull going into 2013.

"I'm not predicting Armageddon, but I do think it will be prudent to take a more defensive position in the market this year," said Cote, who has a 1,515 year-end target for the S&P 500.

Related: Best performing stocks

While Corporate America reported year-over-year earnings growth for 11 straight quarters, that streak was broken during the third quarter of 2012. Overall, Cote expects earnings growth in 2013 to be flat to slightly negative.

"Negative earnings growth is a rare event, and it's a predictor of future negative earnings growth," he said. "This goes beyond the fiscal cliff. It's a signal of a real slowdown in the global economy."

For Cote, that means trimming back on stock exposure and adding to his global bond portfolio.

Related: Full survey results

The slowdown in earnings growth has made Ben Halliburton, chief investment officer at Tradition Capital Market, even more bearish. His 2013 target for the S&P 500 stands at 1,200, down a whopping 16% from the end of 2012.

Halliburton noted that over the past three years, companies have done everything they can to cut costs and improve efficiency, the combination of which has boosted profit margins near record highs.

"Everyone is already working with bare bones," he said. That means any additional weakness in the United States or the broader global economy will have a magnified impact on earnings growth, he added.

Related: Worst performing stocks

Though the majority of experts are forecasting single-digit gains, there are a handful of strategists who are a bit more optimistic.

Ryan Detrick, equity strategist at Schaeffer's Investment Research, is expecting the S&P 500 to rise 15% this year.

While he acknowledges that investors are approaching 2013 with caution and fear, much like they did 2012, he believes the market will continue to ratchet higher, just as it did last year.

"Market pullbacks are to be expected," said Detrick, "But the Dow and S&P 500 will take out their 2007 high in late 2013, as naysayers and underperformers finally buy into the bull market that has been in place since early 2009."

First Published: January 1, 2013: 10:02 PM ET

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Fiscal cliff deal boosts world markets

Vice President Joe Biden helped broker the Senate bill. Some House Republicans have been quick to express their dislike for the measure.

HONG KONG (CNNMoney)

The Senate passed a compromise measure Tuesday that would extend the Bush-era tax cuts for the vast majority of Americans and spare tens of millions from the Alternative Minimum Tax.

But the deal, crafted over the long weekend by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, also required approved by the House. After hours of wrangling and debate, that body finally consented to the plan just before Tuesday expired in the U.S. -- but after markets opened in Asia.

All major global markets were closed Tuesday for the New Year's holiday, so indices in Asia and Australia provided the first clues about investor sentiment.

Australia's ASX All Ordinaries index added 1.2%. South Korea's KOSPI gained 1.5% and the Hang Seng in Hong Kong advanced 1.9%.

Tokyo's Nikkei and the Shanghai Composite remain closed for holiday celebrations, but will reopen later in the week.

Investors in the U.S. will get their first shot at reaction when markets open in New York. U.S. stock futures were pointing to a higher open.

Related: Fiscal Cliff: What's in the deal ... what could have been

While the agreement provides some short-term certainty, it leaves a range of big issues unaddressed.

The bill does not resolve the issue of when and how lawmakers raise the debt ceiling, setting up a major showdown in February.

The legislation also creates a new cliff deadline over spending cuts around the same time the debt ceiling will need to be raised.

And tax and entitlement reform, both are key to long-term deficit reduction, are not included in the compromise proposal.

Todd Schoenberger, managing partner at LandColt Capital, said that the immediate reaction on Wall Street will be "positive," but cautioned that the economy still faces significant challenges.

"Considering there are so many headwinds facing the economy, including the debt ceiling negotiation in 60 days, the smart money knows the bullish sentiment will be short-lived," he said.

First Published: January 1, 2013: 8:06 PM ET

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Fiscal cliff deal would hit the rich - but it could have been worse

The House must still vote on the fiscal cliff deal, which hits the rich.

NEW YORK (CNNMoney)

Those making a million and up will pay $122,560 more in federal taxes, on average, according to new estimates by the Tax Policy Center. That means this group, which includes those bringing home many millions of dollars, will see a 5.7% drop in after-tax income.

Those with comparatively paltry incomes of between half a million and a million bucks will pay nearly $7,000 more in federal taxes, and see a 1.4% drop in after-tax income.

Less than 1% -- actually only 0.7% -- of tax filers overall will see a tax increase. Everyone else, including a wider swath of the middle class, will be virtually unaffected, though all wage earners will see a 2 point increase in the payroll tax that goes toward Social Security.

"It's profoundly a compromise," said Clint Stretch, a Washington tax expert. "We have a new definition of the middle class that seems to include virtually everybody."

The agreement, approved late Tuesday by the House, calls for the top rate on joint filers earning more than $450,000 to return to 39.6%, up from the 35% rate in place since the Bush tax cuts of 2001.

These folks will also pay a top rate on dividends and long-term capital gains of 20%, up from 15%.

Upper-income Americans will also enjoy fewer tax deductions. Married couples earning more than $300,000 will see their itemized deductions and personal exemption phase out. Couples earning more than $422,500 will not be able to take a personal exemption at all.

Also, estates of more than $5 million will be subject to a top tax rate of 40%, up from 35% now.

And this doesn't include two new taxes that will hit the rich to pay for President Obama's health reform package, including a 0.9% tax on earnings above $250,000 for couples and an additional 3.8% levy on investment income for wealthy filers.

Related: Fiscal Cliff: What's in the deal ... what could have been

But it could have been even worse for the rich.

For one thing, more people could have been classified as wealthy. Obama and Democratic policy leaders were originally looking to raise rates on filers with incomes above $250,000.

The higher threshold would helps the rich too since a smaller share of their income will be subject to the highest tax rate.

Another concession for the rich in the Senate deal is the rate on dividends. They will be subject to a top rate of only 20%, rather than 39.6%. This is especially important since a substantial portion of wealthy household's income comes from investments.

First Published: January 1, 2013: 5:59 PM ET

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Senate bill stops many tax hikes, but leaves big issues pending

NEW YORK (CNNMoney)

Most prominently, it would extend the Bush-era tax cuts for the vast majority of Americans and spare tens of millions from the Alternative Minimum Tax.

But the deal, crafted over the long weekend by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, still must be approved by the House.

And while it would provide some short-term certainty, it would leave a range of big issues unaddressed.

For instance, when and how will lawmakers raise the country's debt ceiling? From all indications, the coming fight in February could be ugly.

The legislation also creates a new cliff deadline over spending cuts around the same time the debt ceiling will need to be raised.

And what about real tax and entitlement reform? Both are key to long-term deficit reduction, but neither are included in the compromise proposal.

Instead, according to sources familiar with the deal and the text of the bill, the Biden-McConnell compromise would:

Make most Bush tax cuts permanent: The Bush-era income tax rates would be permanently extended for all income up to $400,000 ($450,000 if married). Bush tax cuts that apply to income above those levels would expire.

Effectively that means for households above those thresholds, their top rate would rise to 39.6%, up from 35% in 2012.

Plus, the capital gains and dividend tax rates for these high-income households would increase to 20% from 15%. For everyone else, investment tax rates would remain at 15% or below.

The compromise bill would also preserve the expanded parameters for the American Opportunity Tax Credit, the Child Tax Credit and Earned Income Tax Credit for 5 more years.

Permanently protect the middle class from the AMT: The bill would permanently adjust the income exemption levels for the Alternative Minimum Tax for inflation.

Most immediately, the measure would prevent close to 30 million middle-class taxpayers from having to pay the so-called wealth tax for 2012.

Without a patch for 2012 in place soon, the IRS has warned lawmakers that up to 100 million taxpayers may not be able to file their 2012 taxes until late March and their refunds would be delayed.

Passing an AMT patch with an extension of the Bush tax cuts on most income -- which together make up the biggest piece of the fiscal cliff -- would boost real GDP by about 1.25% in fiscal year 2013, according to earlier Congressional Budget Office estimates.

Cap itemized deductions on high-income households: The Biden-McConnell compromise would cap how much those making $250,000 (married couples making $300,000) may take in itemized deductions.

Retain key tax incentives for businesses: The bill would extend for two years several tax breaks for businesses, including a production tax credit for developers of wind projects, the research and development tax credit, and a measure allowing for bonus depreciation.

Retains several expired tax breaks for individuals: The compromise bill would extend for one or two years a few "temporary" tax breaks for individuals that regularly are extended. These include an option to deduct state and local sales taxes in place of state and local income taxes; and a deduction for elementary and secondary school teachers for certain expenses.

Permanently extend a more lenient estate tax: The legislation would preserve the current estate tax exemption level of $5.12 million but index it to inflation for future years. And it would raise the top rate to 40% from 35% currently.

If the deal is not approved, the estate tax bite would be much bigger because the exemption level is scheduled to fall to $1 million and the top rate would rise to 55%.

Extend benefits for the long-term unemployed: The bill would continue a federal extension of unemployment benefits for one year.

Without it, more than 2 million of the long-term unemployed would run out of benefits at the end of this year, according to the National Employment Law Project, an advocacy group.

Continuing the benefit extension for one year would cost an estimated $30 billion.

Prevent a cut in Medicare doctors' pay: The Biden-McConnell compromise would prevent a scheduled 27% cut in reimbursement for Medicare services for one year. The so-called "doc fix" would boost the deficit by $31 billion.

Replace sequester for 2 months: The dreaded sequester -- the automatic and blunt spending cuts to defense and nondefense programs -- would be replaced for two months in 2013.

The two months of cuts would be replaced by $12 billion in new revenue and $12 billion in spending cuts.

It's not clear what Congress will decide to do about the sequester after the two months are up. If left in place for the whole year, the sequester would have reduced spending authority in 2013 by roughly $110 billion.

First Published: January 1, 2013: 2:26 AM ET

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Families worried about their tax credits

The Shivers family stands to lose thousands of dollars worth of tax credits next year unless Congress takes action.

NEW YORK (CNNMoney)

Charlie and Jessica Shivers currently receive a Child Tax Credit of about $1,000 for each of their two children. But if Congress fails to extend the credit as it stands, that will drop to no more than $500 each.

And it doesn't stop there. Jessica works as a stay-at-home mom. But Charlie, a federal employee, earns about $84,000 so has received an annual $1,700 boost from the payroll tax cut passed in 2010. But that extra money is likely to disappear because Congress is not expected to extend the tax cut.

Many families like the Shivers could also end up worse off by hundreds or thousands of dollars next year if a deal to avert the fiscal cliff isn't reached.

Four of the biggest tax breaks for families on the chopping block are the Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit and the American Opportunity Credit. All are scheduled to revert to lower levels with the start of the new year.

Meanwhile, the expiration of the payroll tax cut would cause paychecks to shrink for 160 million working Americans, regardless of whether they have children.

Related: Parents await fate of four key tax breaks

The bill passed by the Senate early Tuesday would extend three of these credits, but the legislation still must be approved by the House.

For the Shivers, losing $2,700 would mean a cutback in spending. They would delay home improvements, take fewer road trips to see their family and eat out less often.

"As far as being a consumer, we're going to cut back significantly," he said.

It would also stunt the progress they've made paying off their student loan debt, and they wouldn't be able to put as much money into retirement and college savings.

The tax hit wouldn't be "the difference between putting food on the table or not," but it would definitely "still hurt", said Charlie.

Related: Why your paycheck will shrink, no matter what

Another parent, Linda Sadlouskos, is frustrated that she may not be able to take advantage of the American Opportunity Tax Credit, which is scheduled to revert to the Hope Credit and drop from a maximum of $2,500 to $1,800. It would also no longer be refundable, and it would be available for only two years rather than four.

Her son is attending the University of Medicine and Dentistry of New Jersey this year, and she makes too much to qualify for need-based grants.

"My family income is too high for him to have ever qualified for any outright grants, so this is the only form of assistance we would receive toward his education," she said. "Since I'm a single mom trying to get him his education, every bit helps, because we're on a pretty tight budget."

But most of all, she said it's "unforgivable" that Congress can't get its act together and that parents like her have been left not knowing what to expect going into the new year.

"It seems really callous of all of our lawmakers to be leaving us hanging on New Year's like this," she said. "This is no way to treat the public."

First Published: December 31, 2012: 6:31 PM ET

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3 more fiscal cliffs loom

If Congress passes the fiscal cliff deal at hand, lawmakers will face three more budget deadlines over the next three months. Get ready for the debt ceiling, the sequester part II and the continuing resolution.

NEW YORK (CNNMoney)

That's what's in store if Congress adopts the deal under consideration. The bill approved by the Senate early Tuesday doesn't address the debt ceiling and temporarily puts off most of the automatic spending cuts otherwise set to take effect Wednesday.

Assuming it passes the Senate and House, here is what's still ahead:

1. Debt Ceiling: Congress has to raise the debt ceiling soon. Real soon.

On Monday, Treasury Secretary Tim Geithner made it official: Federal borrowing has reached the $16.394 trillion debt ceiling.

The Treasury Department, which runs the government's debt-issuance operation, can create about $200 billion of headroom by employing what it calls "extraordinary measures." That normally could cover about two months' worth of borrowing, although continuing uncertainty about tax rates and spending make it hard to determine precisely how long the extraordinary measures will last.

Deadline: Late February or early March.

What's at stake: Last year, political brinksmanship over the debt limit led to the downgrade of the country's credit rating, roiled stock markets and raised questions about the country's willingness to pay all of its bills on time. It also wasted $1.3 billion because of the uncertainty it wrought on the complex task of federal borrowing.

2. Sequester: The so-called sequester is a series of automatic cuts in federal spending that will reduce the budgets of most agencies and programs by 8% to 10%.

The cuts were born of the epic 2011 fight over the debt ceiling. The idea was to create a "trigger" so onerous and indiscriminate that both parties would have an incentive to devise a smarter way to reduce deficits. Instead, 17 months later, Congress is considering a deal that would set up yet another deadline.

Deadline: Bill would postpone many of the Jan. 2 cuts by two months.

What's at stake: The spending cuts as laid out in 2011 would ripple out across thousands of federal programs and projects and, the White House budget office said in September, "would have a devastating impact on important defense and nondefense programs."

3. Continuing Budget Resolution: The federal government works on a fiscal year that starts every Oct. 1. Problem is it has been years since it actually enacted a real budget on time.

There's a process for enacting a budget: Congressional committees are supposed to hold hearings. Experts and interested parties testify about proposals. Lawmakers deliberate over the right spending levels for each federal agency and then roll it all up into a budget.

But Congress rarely ends up following that process. Instead, it usually passes short-term "continuing resolutions," which is fancy way of saying "Band Aid solution."

Deadline: The current continuing resolution expires on March 27.

What's at stake: Congress will have to pass yet another continuing resolution to avoid a temporary shutdown of some government functions, worker furloughs and a pullback in programs.

First Published: December 31, 2012: 11:09 PM ET

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Senate bill stops many tax hikes, but leaves big issues pending

NEW YORK (CNNMoney)

Most prominently, it would extend the Bush-era tax cuts for the vast majority of Americans and spare tens of millions from the Alternative Minimum Tax.

But the deal, crafted over the long weekend by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, still must be approved by the House.

And while it would provide some short-term certainty, it would leave a range of big issues unaddressed.

For instance, when and how will lawmakers raise the country's debt ceiling? From all indications, the coming fight in February could be ugly.

The legislation also creates a new cliff deadline over spending cuts around the same time the debt ceiling will need to be raised.

And what about real tax and entitlement reform? Both are key to long-term deficit reduction, but neither are included in the compromise proposal.

Instead, according to sources familiar with the deal and the text of the bill, the Biden-McConnell compromise would:

Make most Bush tax cuts permanent: The Bush-era income tax rates would be permanently extended for all income up to $400,000 ($450,000 if married). Bush tax cuts that apply to income above those levels would expire.

Effectively that means for households above those thresholds, their top rate would rise to 39.6%, up from 35% in 2012.

Plus, the capital gains and dividend tax rates for these high-income households would increase to 20% from 15%. For everyone else, investment tax rates would remain at 15% or below.

The compromise bill would also preserve the expanded parameters for the American Opportunity Tax Credit, the Child Tax Credit and Earned Income Tax Credit for 5 more years.

Permanently protect the middle class from the AMT: The bill would permanently adjust the income exemption levels for the Alternative Minimum Tax for inflation.

Most immediately, the measure would prevent close to 30 million middle-class taxpayers from having to pay the so-called wealth tax for 2012.

Without a patch for 2012 in place soon, the IRS has warned lawmakers that up to 100 million taxpayers may not be able to file their 2012 taxes until late March and their refunds would be delayed.

Passing an AMT patch with an extension of the Bush tax cuts on most income -- which together make up the biggest piece of the fiscal cliff -- would boost real GDP by about 1.25% in fiscal year 2013, according to earlier Congressional Budget Office estimates.

Cap itemized deductions on high-income households: The Biden-McConnell compromise would cap how much those making $250,000 (married couples making $300,000) may take in itemized deductions.

Retain key tax incentives for businesses: The bill would extend for two years several tax breaks for businesses, including a production tax credit for developers of wind projects, the research and development tax credit, and a measure allowing for bonus depreciation.

Retains several expired tax breaks for individuals: The compromise bill would extend for one or two years a few "temporary" tax breaks for individuals that regularly are extended. These include an option to deduct state and local sales taxes in place of state and local income taxes; and a deduction for elementary and secondary school teachers for certain expenses.

Permanently extend a more lenient estate tax: The legislation would preserve the current estate tax exemption level of $5.12 million but index it to inflation for future years. And it would raise the top rate to 40% from 35% currently.

If the deal is not approved, the estate tax bite would be much bigger because the exemption level is scheduled to fall to $1 million and the top rate would rise to 55%.

Extend benefits for the long-term unemployed: The bill would continue a federal extension of unemployment benefits for one year.

Without it, more than 2 million of the long-term unemployed would run out of benefits at the end of this year, according to the National Employment Law Project, an advocacy group.

Continuing the benefit extension for one year would cost an estimated $30 billion.

Prevent a cut in Medicare doctors' pay: The Biden-McConnell compromise would prevent a scheduled 27% cut in reimbursement for Medicare services for one year. The so-called "doc fix" would boost the deficit by $31 billion.

Replace sequester for 2 months: The dreaded sequester -- the automatic and blunt spending cuts to defense and nondefense programs -- would be replaced for two months in 2013.

The two months of cuts would be replaced by $12 billion in new revenue and $12 billion in spending cuts.

It's not clear what Congress will decide to do about the sequester after the two months are up. If left in place for the whole year, the sequester would have reduced spending authority in 2013 by roughly $110 billion.

First Published: January 1, 2013: 2:26 AM ET

15.30 | 0 komentar | Read More

Families worried about their tax credits

The Shivers family stands to lose thousands of dollars worth of tax credits next year unless Congress takes action.

NEW YORK (CNNMoney)

Charlie and Jessica Shivers currently receive a Child Tax Credit of about $1,000 for each of their two children. But if Congress fails to extend the credit as it stands, that will drop to no more than $500 each.

And it doesn't stop there. Jessica works as a stay-at-home mom. But Charlie, a federal employee, earns about $84,000 so has received an annual $1,700 boost from the payroll tax cut passed in 2010. But that extra money is likely to disappear because Congress is not expected to extend the tax cut.

Many families like the Shivers could also end up worse off by hundreds or thousands of dollars next year if a deal to avert the fiscal cliff isn't reached.

Four of the biggest tax breaks for families on the chopping block are the Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit and the American Opportunity Credit. All are scheduled to revert to lower levels with the start of the new year.

Meanwhile, the expiration of the payroll tax cut would cause paychecks to shrink for 160 million working Americans, regardless of whether they have children.

Related: Parents await fate of four key tax breaks

The bill passed by the Senate early Tuesday would extend three of these credits, but the legislation still must be approved by the House.

For the Shivers, losing $2,700 would mean a cutback in spending. They would delay home improvements, take fewer road trips to see their family and eat out less often.

"As far as being a consumer, we're going to cut back significantly," he said.

It would also stunt the progress they've made paying off their student loan debt, and they wouldn't be able to put as much money into retirement and college savings.

The tax hit wouldn't be "the difference between putting food on the table or not," but it would definitely "still hurt", said Charlie.

Related: Why your paycheck will shrink, no matter what

Another parent, Linda Sadlouskos, is frustrated that she may not be able to take advantage of the American Opportunity Tax Credit, which is scheduled to revert to the Hope Credit and drop from a maximum of $2,500 to $1,800. It would also no longer be refundable, and it would be available for only two years rather than four.

Her son is attending the University of Medicine and Dentistry of New Jersey this year, and she makes too much to qualify for need-based grants.

"My family income is too high for him to have ever qualified for any outright grants, so this is the only form of assistance we would receive toward his education," she said. "Since I'm a single mom trying to get him his education, every bit helps, because we're on a pretty tight budget."

But most of all, she said it's "unforgivable" that Congress can't get its act together and that parents like her have been left not knowing what to expect going into the new year.

"It seems really callous of all of our lawmakers to be leaving us hanging on New Year's like this," she said. "This is no way to treat the public."

First Published: December 31, 2012: 6:31 PM ET

15.30 | 0 komentar | Read More

3 more fiscal cliffs loom

If Congress passes the fiscal cliff deal at hand, lawmakers will face three more budget deadlines over the next three months. Get ready for the debt ceiling, the sequester part II and the continuing resolution.

NEW YORK (CNNMoney)

That's what's in store if Congress adopts the deal under consideration. The bill approved by the Senate early Tuesday doesn't address the debt ceiling and temporarily puts off most of the automatic spending cuts otherwise set to take effect Wednesday.

Assuming it passes the Senate and House, here is what's still ahead:

1. Debt Ceiling: Congress has to raise the debt ceiling soon. Real soon.

On Monday, Treasury Secretary Tim Geithner made it official: Federal borrowing has reached the $16.394 trillion debt ceiling.

The Treasury Department, which runs the government's debt-issuance operation, can create about $200 billion of headroom by employing what it calls "extraordinary measures." That normally could cover about two months' worth of borrowing, although continuing uncertainty about tax rates and spending make it hard to determine precisely how long the extraordinary measures will last.

Deadline: Late February or early March.

What's at stake: Last year, political brinksmanship over the debt limit led to the downgrade of the country's credit rating, roiled stock markets and raised questions about the country's willingness to pay all of its bills on time. It also wasted $1.3 billion because of the uncertainty it wrought on the complex task of federal borrowing.

2. Sequester: The so-called sequester is a series of automatic cuts in federal spending that will reduce the budgets of most agencies and programs by 8% to 10%.

The cuts were born of the epic 2011 fight over the debt ceiling. The idea was to create a "trigger" so onerous and indiscriminate that both parties would have an incentive to devise a smarter way to reduce deficits. Instead, 17 months later, Congress is considering a deal that would set up yet another deadline.

Deadline: Bill would postpone many of the Jan. 2 cuts by two months.

What's at stake: The spending cuts as laid out in 2011 would ripple out across thousands of federal programs and projects and, the White House budget office said in September, "would have a devastating impact on important defense and nondefense programs."

3. Continuing Budget Resolution: The federal government works on a fiscal year that starts every Oct. 1. Problem is it has been years since it actually enacted a real budget on time.

There's a process for enacting a budget: Congressional committees are supposed to hold hearings. Experts and interested parties testify about proposals. Lawmakers deliberate over the right spending levels for each federal agency and then roll it all up into a budget.

But Congress rarely ends up following that process. Instead, it usually passes short-term "continuing resolutions," which is fancy way of saying "Band Aid solution."

Deadline: The current continuing resolution expires on March 27.

What's at stake: Congress will have to pass yet another continuing resolution to avoid a temporary shutdown of some government functions, worker furloughs and a pullback in programs.

First Published: December 31, 2012: 11:09 PM ET

15.30 | 0 komentar | Read More

China stocks rebound as data improves

Click chart for more markets data.

HONG KONG (CNNMoney)

But favorable economic reports and the prospect of market reform has drawn investors back in this month, driving the index into positive territory for the year and 16% above its early December low.

As recently as Dec. 3, the index was down 9% on the year. At the same point, the Nikkei was up more than 10%, the FTSE 100 was up 3%, and Germany's DAX had skyrocketed 22%. In the United States, the S&P 500 had more than doubled from its recession lows, jumping 10% since January.

But China's marquee index has mounted a robust rally over the past month, helped by strong manufacturing, industrial and trade data. On Monday, HSBC's manufacturing PMI index, a key indicator, hit its highest level in 19 months in December. And last week, Beijing reported industrial profits were up more than 20% year over year.

Buoyed by the reports, the Shanghai Composite closed the year at 2,269 points on Monday, up 3% since January.

China's economy is still expanding at an annual rate of 7% to 8%, but it has slowed somewhat from figures that often exceeded 10% before the global financial crisis.

The slowing pace of growth -- still the envy of many nations -- has weighed on stocks. For much of 2012, listed companies reported lackluster profits while retail investors abandoned stocks in favor of higher returns on alternative investments, especially physical property, wealth management and trust products.

Related: Chinese firms go on U.S. spending spree

But the latest round of data seems to have encouraged investors. The index's rebound has also been fueled by hints at greater regulatory reform -- especially signals from policymakers that more foreign investment will be allowed.

"Foreign investors are becoming more sanguine on the A-share market, while domestic investor sentiment appears to be finally bottoming," equity analysts at HSBC wrote in a recent report.

The HSBC analysts, who are bullish on the Shanghai Composite's performance, predict that improving economic conditions, coupled with rising risk appetite, positive fund flows and structural reforms, should lead to higher returns in 2013.

Still, stumbling blocks remain, and the detailed intentions of China's new leadership are not widely known.

"The second wave of reform is set to be considerably more difficult and internally-focused than the first, as the government strives to better align government and markets through further price reform, stimulate demand through new-style urbanization, improve income distribution and enhance supply discipline by breaking up state monopolies," HSBC's analysts wrote.

First Published: December 31, 2012: 4:04 AM ET

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