At this time of the year newspapers are filled with predictions for the months ahead. The one prediction I can make with confidence is they are mostly going to be wrong. Trying to forecast a market’s level in a year’s time uses up plenty of column inches but I’m afraid it is really just a matter of pure guesswork. Before I am called a hypocrite because I have done it myself, I have always told editors that they should take it with a huge pinch of salt. However, from a private investor’s point of view, forecasts can be quite interesting. They can actually be helpful. Why? Because if you can find a real consensus amongst the experts you can often find the very thing not to do!
I note, for example, that many are keen on emerging markets this year. So am I, but then I have been a fan of this sector for over 20 years and I remain very positive over the longer term. Nonetheless, in the last couple of days I have grown a little wary of the sector in the very short term. Valuations, as yet, don’t look too demanding but the fact remains that they have had a tremendous run from the lows in 2008. In some cases markets have risen 100% or so. I would therefore suggest that if you are keen on this area and you are happy with the risks involved you do one of two things. Start a monthly savings plan, which will help even out the fluctuations in the stock market over time - something I do myself. Or, for those of you who want to invest a lump sum, why not just wait a little. I note that experts such as Mark Mobius from Franklin Templeton Emerging Markets are suggesting a 20% fall at some stage. If this happens, it could be the time to invest.
Might it be that the developed world surprises on the upside instead? Everyone has written off Europe, the UK, America, and obviously Japan, but in stock market terms they might do better than you first think. The UK is a perfect example, the economy looks absolutely dreadful. If I possessed a brick within my house I would now have no television, as I scream at senseless politicians (both right and left) who can talk about nothing other than how to spend money they don’t have. Sterling has had its biggest fall since we left the ERM in 1992 and having just come back from holiday I can certainly confirm that going overseas is very expensive. When in a very mediocre Australian restaurant a steak costs you £25, you know something is up. However, a weak pound might not be so bad for the UK stock market, according to BlackRock, three-quarters of earnings comes from overseas; you could see an increase in profits simply through the deterioration of sterling. It is therefore essential to divorce the stock markets of the world from their economies – they can behave quite differently. Combined with the huge private sector cost cutting that we have already seen, the fall in the pound could well provide hope for the UK stock market.
One area I think is particularly cheap within the UK market is blue chip, defensive shares. UK income funds have been hit hard over the last two or three years, yet funds such as Newton Higher Income currently yield almost 7%. The likes of Invesco Perpetual High Income and Invesco Perpetual Income along with others are full of companies that should not only survive but prosper through a difficult recession in the UK. I believe they deserve, and will achieve, a re-rating. So don’t write off the UK and put all your money in emerging markets. The UK is a cheap area and, on a global basis, so too are the big, blue chip defensive shares on high yields. Over the next few weeks you will see one or two funds in my column that reflect this theme.
Key Features of the Franklin Templeton Emerging Markets Fund
Key Features of the Newton Higher Income Fund
Key Features of the Invesco Perpetual High Income Fund
Key Features of the Invesco Perpetual Income Fund
I note, for example, that many are keen on emerging markets this year. So am I, but then I have been a fan of this sector for over 20 years and I remain very positive over the longer term. Nonetheless, in the last couple of days I have grown a little wary of the sector in the very short term. Valuations, as yet, don’t look too demanding but the fact remains that they have had a tremendous run from the lows in 2008. In some cases markets have risen 100% or so. I would therefore suggest that if you are keen on this area and you are happy with the risks involved you do one of two things. Start a monthly savings plan, which will help even out the fluctuations in the stock market over time - something I do myself. Or, for those of you who want to invest a lump sum, why not just wait a little. I note that experts such as Mark Mobius from Franklin Templeton Emerging Markets are suggesting a 20% fall at some stage. If this happens, it could be the time to invest.
Might it be that the developed world surprises on the upside instead? Everyone has written off Europe, the UK, America, and obviously Japan, but in stock market terms they might do better than you first think. The UK is a perfect example, the economy looks absolutely dreadful. If I possessed a brick within my house I would now have no television, as I scream at senseless politicians (both right and left) who can talk about nothing other than how to spend money they don’t have. Sterling has had its biggest fall since we left the ERM in 1992 and having just come back from holiday I can certainly confirm that going overseas is very expensive. When in a very mediocre Australian restaurant a steak costs you £25, you know something is up. However, a weak pound might not be so bad for the UK stock market, according to BlackRock, three-quarters of earnings comes from overseas; you could see an increase in profits simply through the deterioration of sterling. It is therefore essential to divorce the stock markets of the world from their economies – they can behave quite differently. Combined with the huge private sector cost cutting that we have already seen, the fall in the pound could well provide hope for the UK stock market.
One area I think is particularly cheap within the UK market is blue chip, defensive shares. UK income funds have been hit hard over the last two or three years, yet funds such as Newton Higher Income currently yield almost 7%. The likes of Invesco Perpetual High Income and Invesco Perpetual Income along with others are full of companies that should not only survive but prosper through a difficult recession in the UK. I believe they deserve, and will achieve, a re-rating. So don’t write off the UK and put all your money in emerging markets. The UK is a cheap area and, on a global basis, so too are the big, blue chip defensive shares on high yields. Over the next few weeks you will see one or two funds in my column that reflect this theme.
Key Features of the Franklin Templeton Emerging Markets Fund
Key Features of the Newton Higher Income Fund
Key Features of the Invesco Perpetual High Income Fund
Key Features of the Invesco Perpetual Income Fund