Showing posts with label 2011 market outlook. Show all posts
Showing posts with label 2011 market outlook. Show all posts

Tuesday 11 January 2011

Predicting the Unknowables!

'Beware the second half of the year'
The year bodes well for many asset classes, but in our opinion equities and commodities will fight for pole position.


We believe equities will produce good returns of around 8pc-10pc for the year, but these figures hide an expected return of 15pc-20pc in the first half, likely to be eroded by poorer markets in the second half.
The property market may be fairly neutral by comparison, likely to return 4pc-5pc, and gold may disappoint investors after a decade of good performance with a possibility of negative returns.
Bonds' 30-year "bull run" is nearing an end and the asset class is likely to produce negative returns for all but the most active managers.
Loose monetary and fiscal policies will continue to support the US economic recovery and provide impetus for robust growth along with strong emerging economies. As a result, we expect to see a stronger-than-consensus global recovery. But the momentum could peak in the first half of the year as the effects of the current loose monetary policies bring inflationary pressures to the fore and encourage rate hikes.
This would affect emerging markets more than the West as many policy-makers in the region have been slow in their response. In contrast to 2010, developed markets will outperform, or at least match, Asian and emerging markets.
Extreme investor optimism has resulted in many equity markets being technically overbought in the short term. Thus a correction is likely but this could present a buying or switching opportunity.
In such a scenario we believe allocations to commodities, resource, energy and technology stocks may be rewarding. Small and mid-cap stocks in the US and UK, and mid-caps in Germany, also represent good opportunities. For the more adventurous, frontier markets will be worth considering given that they have been left behind in this global rally. Most of the gains in 2011 are likely to come in the first half of the year. Timely exit strategies may be necessary to lock in profits.

Friday 7 January 2011

Variety of market-shaking bubbles might inflate in 2011

7 JAN, 2011, 12.27PM IST,BLOOMBERG
Variety of market-shaking bubbles might inflate in 2011

TOKYO: Welcome to the year of the bubble. It may seem an odd assertion at a time when many key economies are in, or on the verge of, recession. Yet near-zero interest rates in Washington, Tokyo and Frankfurt have a way of wreaking havoc with markets and human psychology. It's not a reach to say we have a bubble in bubbles. A variety of market-shaking bubbles might inflate before our eyes - some in asset markets, others in flawed perceptions. Here are eight.

Hot money: It's terrific the MSCI AC Asia Pacific Index jumped 14% last year, outpacing MSCI's broader indexes. It would be better, though, if the gains had more to do with fundamentals and less with ultra-low rates. The Bank of Japan's largess has long seeped overseas to boost stock, bond and property prices near and far. The yen-carry trade - borrowing cheaply in yen and using the funds for riskier bets overseas - was the forerunner of a similar dollar trade. Federal Reserve policies sent tidal waves of liquidity toward Asia in 2010. It could reach disastrous proportions, leaving a trail of ruin in its wake.

Decoupling theory: The bubble here is the unsustainable belief that Asia can grow rapidly no matter what happens among the biggest economies. Don't bet on it. It's great China is growing 9.6% and India at 8.9%. But, nothing would serve Asia better than a rebound in growth in the US , euro zone, Japan and the UK, which combined make up $34 trillion in annual output. Developing economies may live for a couple of years without the majors. Good luck keeping up that performance in the years ahead.

Food prices: A January 3 Times of India headline raised a question in many minds: "Can government do nothing legally to check prices?" The answer is: not much. The UN Food and Agriculture Organization predicts the global cost of importing foodstuffs totalled $1.026 trillion in 2010, compared with $893 billion in 2009. Imbalances in supply and demand and regional trade rigidities will accelerate the trend, swamping developing nations with the most basic of problems: Filling the bellies of those powering their economic rise.

Income inequality: The trajectory of everyday prices is a fast-developing setback to Asia's efforts to narrow its gaping rich-poor divide. Rising costs for cooking-oil and rice may mean little to a Goldman Sachs Group Inc staffer. To a family living on $3 a day and already spending two-thirds of income on food, they are devastating. Rising wealth disparities could foreshadow a year of tensions, as failed harvests and inflation cause famines, riots, hoarding and trade wars worldwide. The bubble here would be one in human suffering.

Wacky weather: A few months ago, drought was imperiling Australia's economic outlook. Today floods that some characterise as "biblical" have economists calculating the implications for commodity prices. Forget temperatures and focus on the increasing frequency of freaky weather patterns from Miami to Mumbai.

Currency reserves: Why any economy needs $2.7 trillion of them is beyond me. It's not just China that is trapped into adding to its currency stockpile to keep its existing holdings from losing value. Japan has more than $1 trillion, while Taiwan, South Korea, Hong Kong, Singapore and Thailand have a combined $1.3 trillion. Talk about an unproductive use of wealth - and a risk that's growing by the day with no easy fix in sight.

Geopolitical risks: Leave it to Kim Jong-Il to remind investors that the biggest surprises won't be from economic or corporate reports, but rogue regimes. Expect a bull market in territorial disputes. Faced with growing uncertainty, governments are desperate to placate the masses. The desire to unify the home population may lead to rifts between neighbours. Those seeking shelter from these brewing storms explains why gold is almost $1,400 an ounce.

Group of 20: Any optimism that European officials can avert disaster might be seen as irrational. The same goes for the belief that China can grow 10% annually forever or that Japan's leaders can defeat deflation. The real perceptions bubble is that a disparate grouping of 20 nations can tame out-of-whack markets and imbalances that were decades in the making. The year ahead might turn any, or all, of these accepted wisdoms on their head.

http://economictimes.indiatimes.com/markets/analysis/variety-of-market-shaking-bubbles-might-inflate-in-2011/articleshow/7232817.cms

Sunday 26 December 2010

Taking stock of global opportunities in 2011

By Andrew Tanzer
Saturday, December 25, 2010; 11:32 PM

To understand the investing outlook for 2011, let's look back. Despite emerging from a long and brutal recession, the economy mustered only an anemic expansion in 2010. The most notable manifestation of the tepid recovery was a high jobless rate that scarcely budged all year. And yet, over the past year (through Nov. 5), the U.S. stock market managed to post an impressive 17.3 percent return.

The same pattern - a stagnant economy but a decent stock performance - may repeat in 2011. The economy should grow by little more than 2.5 percent, and the jobless rate could even tick up to 10 percent. But stocks could still return 7 to 10 percent over the next year, in line with corporate earnings growth and the market's current dividend yield of 1.9 percent. The Dow Jones industrial average should finish 2011 above 12,000.

How to explain the apparent disconnect between the muddle-through economy and the perky stock market? A number of factors contributed. Interest rates are already at rock-bottom levels, and the Federal Reserve Board says it plans to buy $600 billion in Treasuries by the middle of 2011 to keep rates low. The balance sheets of U.S. companies, unlike those of our government and households, are in excellent shape. Profits should continue to rise moderately in 2011 and match or exceed the record level, set in 2006. With Standard & Poor's 500-stock index selling at 13 times projected 2011 earnings, stocks do not appear to be excessively valued, especially relative to bonds and cash.

Don't forget that the S&P 500 companies earn 40 percent of profits abroad, where growth is higher than at home. David Bianco, chief stock strategist of Bank of America Merrill Lynch, calculates that profit margins of U.S. companies are far higher overseas. Bianco says four sectors in the S&P index - technology, energy, materials and industrials - are generating more than half their profits abroad.

Profit increases in 2010 at global companies such as Boeing, Caterpillar and Coca-Cola were powered by buoyant growth in developing countries - economies that Merrill Lynch projects will generate no less than 75 percent of the world's economic growth in 2011.

Risks to watch

Also in 2011, the shift in control of Congress, which will be split between a Republican House and a Democratic Senate, will likely produce political gridlock. Some observers think that could be good for stocks because Congress won't be able to enact laws that could harm business. It could be a negative if lawmakers are unable to address a financial emergency.

We'd be remiss if we didn't outline some of the risks and lingering structural weaknesses in the economy. Recognizing risks as they come to the fore may help you make midcourse corrections in 2011 and beyond.

Volatility should remain high in 2011 because of contradictory signals from an economy that is expanding in fits and starts. Even Federal Reserve Chairman Ben Bernanke frets about an "unusually uncertain" environment. He and most Fed governors think inflation is too low and clearly seek to engineer higher price increases through ultra-loose monetary policy. Because the Fed's gambit is untested, there is a risk that the inflation genie will escape the bottle.

Government monetary and budget policies are helping to drive the dollar lower, which aids U.S. corporate profits. The trouble is that many other governments are also cheapening their currencies to juice exports and job growth. There is a chance this race to the currency bottom, which is a form of protectionism, could degenerate into a trade war.

Bond outlook

After years of delivering stunning gains, bonds may be a less-comfortable resting place for your money in 2011. During 2009 and 2010, individual investors poured more than $600 billion into bond funds. But a rise in long-term interest rates - a distinct possibility in 2011 - could result in losses for many bondholders.

Surveying the risks stemming from currency wars, and from rising inflation, interest rates and the sluggish domestic economy, one analyst concludes that investors would be wise to embrace global investing.

"A lot of U.S. investors need to make a paradigm shift in 2011," says Dean Junkans, chief investment officer for Wells Fargo Private Bank. "Think of yourself as a global investor living in the U.S. rather than as a U.S. investor with some global exposure."

In his portfolios, Junkans says, he's increased foreign exposure "permanently" by 50 percent over the past four years.

Any pessimism about prospects for the economy stems largely from that familiar trinity of linked problems - housing, banking and busted household balance sheets - which will dog us for a few more years.

Gauging opportunity

So where do you invest if growth remains sluggish in 2011? One idea is to look for companies that can expand revenues much faster than the overall rate of economic growth, such as Apple and Marvell Technology, a maker of microprocessors and storage devices. Or look for multinational corporations that can tap into much stronger growth abroad, especially in vibrant developing nations.

What makes blue-chip companies especially intriguing is that they appear to be attractively priced relative to the market and to their own past levels of value. Moreover, many of these companies come with sturdy balance sheets - which provide a measure of safety in an uncertain economic environment - and proven, consistent business models.

One sweet spot in the market is blue chips with direct or indirect exposure to emerging markets. For instance, says Channing Smith, co-manager of Capital Advisors Growth Fund, companies such as Procter & Gamble, Pepsi, IBM and ExxonMobil.

Michael Keller, co-manager of BBH Core Select Fund, likes multinationals that sell products that consumers in emerging markets buy on a regular basis, such as Nestle, the Swiss food giant, with its powerful global brands and distribution capabilities, and Baxter, which he thinks will benefit from a sharper focus on health care and hygiene in developing nations.

Sometimes you can find companies that can grow faster than the economy at home and ride brisker economic growth abroad. Jim Tierney, chief investment officer of money manager W.P. Stewart, sees such possibility in Polo Ralph Lauren and MasterCard. Ralph Lauren is expanding globally - with new stores in Chile, Korea and Malaysia - and extending its product line into watches, jewelry and sunglasses. MasterCard benefits from the growing use of credit cards all over the world.

U.S. companies gain when they produce abroad or export goods and services to foreign consumers, factories or infrastructure projects. But companies can indirectly benefit from rising emerging-market economies. For example, Ed Maran, co-manager of Thornburg Value Fund, is high on U.S. Steel, a domestic producer, because the strength of developing nations boosts steel prices - and profits.

Urbanization, industrialization and rising living standards in the developing world will drive up commodity prices, says Evan Smith, co-manager of U.S. Global Investors Resources Fund.

Jordan Opportunity Fund's Jerry Jordan is bullish on agribusiness. As rural migrants flock to cities, and as incomes rise in countries such as China and India, diets change dramatically and demand for animal protein - which requires lots of grain to produce - surges. Jordan estimates that 500 million to 800 million more residents of lower-income countries are shopping in food stores and eating in restaurants than a decade ago. He holds tractor maker Deere, fertilizer producer Mosaic and iPath DJ-UBS Grains, an exchange-traded note that tracks the price of corn, soybeans and wheat.

- Kiplinger's Personal Finance

Review of 2010 and outlook for 2011

Australian market

Key points

 2010 has been somewhat disappointing for investors,
with continuing economic recovery but various macro
scares resulting in a constrained and volatile ride for
share markets and other related investments.

 2011 is likely to see global growth continue, and this
combined with attractive valuations and easy money is
likely to underpin renewed acceleration in the recovery
in shares and other growth oriented investments.

 Key risks relate to the US housing market, sovereign
debt in advanced countries and emerging market
inflation. However, with shares cheap and so much
liquidity around its also possible that returns surprise on
the upside after the consolidation of 2010

Read more here ....

Record Earnings To Propel Record High Stock Market Levels

September 29, 2010

This publication shows our compilation of the earnings estimates for various markets and regions, as well as the earning trends for the next two years. Earnings are expected to hit record levels by 2011 or 2012 for most markets and regions.


Read more here ....