THE first six months of 2010 will be “incredibly bullish” but investment will tail off in the second half, according to new research by Williams De Broë.
The portfolio management firm advises caution over emerging markets, fearing they are being artificially buoyed by foreign investment.
Head of research Jim Wood-Smith said: “Our round-up is that the year will have a strong first half and a weaker second half. Lead indicators are showing that the first half of this year will be incredibly bullish. The US lead indicator has risen for eight consecutive months.
“But the second half of 2010 will begin to get a lot sloppier. A lot of the increases we are now seeing are coming from the inventory cycle. There was a backlog after Lehman Brothers collapsed when nobody bought anything.
“Now we are going to see taxes and interest rates increasing. We think inflation will increase by about three per cent in the first half of the year. Beyond that is dependent on the cost of oil.”
Wood-Smith predicted the pound will decrease in value when a new government is voted in as markets test their resolve by selling sterling.
He warned that emerging markets, particularly India, may be at risk if foreign investment wanes. He said: “At the moment we all know emerging markets are the place to be. India in particular is hugely important.
“But what scares me is the homogeneity of the 2009 percentage return in China, India and Brazil – all very close to 80 per cent.
“This scares me because they appear to be fuelled by foreign investment, not market fundamentals, which means it could all be driven down just as quickly.
“I’m not sure it is the right time to go into India – it would have to be one hell of a long term strategy.”
He was wary of investment opportunities linked to the proliferation of smart phones, saying very few people are likely to make any money.