Just the other day, I was sent some research on global trends over the next decade. While it made for interesting reading, many players are indicating that the year at hand will be more about stock picking rather than trying to chase trend money.
Michael Browne, portfolio manager at Sofaer Global Research, says that if you want to buy equities now you should buy old fashioned stocks with a touch of cyclicality. In contrast to many investors who think it can be toxic to be holding companies with a lot of debt, Browne doesn’t mind if there is some gearing in the business – if the business is going through a large restructuring process, that is.
We might not be ready to buy the big banks just yet but we should be looking at financial services businesses, he says. These are companies, such as FTSE 100 listed Experian, that support the banks but don’t use capital in the same manner. Airlines, which could see more customers as we exit recession, and gambling, which may be deregulated, are also recommended by Browne.
On broader issues, Guy Monson, partner at Sarasin & Partners, thinks there is a meaningful risk that a gilt/money market event could occur which would put pressure on people that have invested in the short end of the curve. Two to three year rates could spike, which would impact commercial and residential property investors that rely on short term borrowing. Monson underlines that there wouldn’t be a huge impact on UK equity markets if this were to happen as two thirds of earnings now stem from abroad. It wouldn’t be a particularly big issue for sterling which is already weak.
The wildcard, of course, remains the withdrawal of quantitative easing, starting this week.
Louisa Bojesen is a presenter on Squawk Box Europe each weekday morning on CNBC. http://europe.cnbc.com