The Outlook for 2013on Friday, 21 December 2012. Posted in Economic Commentary
What should we be holding? What areas look good and not so good?
Our overall thoughts on 2013
We are confident, for the first time in a while. We aren’t the only one. Jim Cramer is too. The immediate clouds, assuming the fiscal cliff is solved as expected, are lifted for the first time in a while. But here are our general thoughts on 2013.
First – Exchange traded funds – reduce your costs.
The latest issue of the Economist continues to talk about reducing investment costs and how hedge funds overcharge for no discernable benefit. It is also something we’ve written on before. Get with the program. Sell your overcharging mutual funds and put your investments into index funds that are exchange traded. Paying less that will actually make you money.
Second – China, Shanghai market could be back
We have also written about this before, but it bears repeating. In fact, further evidence has been even more encouraging. Witness Xi Jinping’s first trip: a southern tour to mimic Deng Xiaoping. It could not have been clearer in demonstrating his reformist instinct in stark contrast to Hu Jintao’s homage to Mao. Further reforms and opening of the financial industry and stock market to foreigners will be the biggest boost for the market in years.
Make sure you get your “A” share market and not US listing of Chinese companies and get in now. You will need to look hard elsewhere for China “A” share market exposure, or just talk to us.
Third – Emerging Markets in general, particularly BRICs.
Once the fiscal cliff is out the way the immediate dark clouds will be minimal and the low interest rates globally will push money into “risk” assets globally. We think it is worth considering an emerging market mutual fund exchange traded fund like iShares MSCI Emerging Market Index ETF (EEM) or SPDR S&P BRIC 40 (BIK) to get access to these areas. BRIC fund indexes have relatively underperformed the wider emerging market index of late so might represent better value.
Fourth – Property with a good yield
As confidence returns to both borrowers and lenders more people will chase yield to more adventurous places. It is too early to worry about a bubble just yet, given low asset property asset prices, particularly in the US. This time of the cycle is where confidence will return and low interest rates and yields of 6-9% start to see a lot of demand, pushing the first round of price rises. It might run for a couple of years but the earlier investors see the gains. See us to get access to the right commercial property opportunities with a 6-8% yield.
Fifth – Quick Ideas
- US house prices will continue to trend up on low mortgage costs.
- Bank of America which is selling at around half book value.
- Dow Corning putting its on Gorilla Glass on every Apple product (and smartphone).
- Sugar at a 2 year cyclical low price point.
- Ford with falling debt a cheap PE ratio of 6.5.
- Monsanto which will benefit from rising crop plantings.
Thanks for everyone’s support this year. Have a great break and best of luck in 2013.
*It is the easiest of bets to make. Not only is it 100% likely the world will continue. If we are wrong, how can anyone possibly collect their prize?