Funds and other institutional investors usually adjust their portfolios according to what happened at the end of the year and the start of the new one.
Here are the top 10 investment themes for 2015:
1. Continue to sell oil and oil stocks, and wait to buy back when the trend turns around. Oil prices continue to test new lows. If oil price breaks below US$40, it would move towards US$32.
2. Market turmoil benefits gold. Free falling oil prices, low inflation and stagnant wages in the United States would translate into modest US interest rate hike or even no increase at all. The 10-year US bond yield stands at 1.909 percent, which means lower opportunity costs for holding gold. And central banks in Japan and Europe are poised to print more money, which would definitely benefit gold.
3. The US will become the only developed economy to show growth. US equities have posted whopping gains, although the earnings growth of S&P 500 constituents has only risen 1.1 percent from the previous year, the lowest level since the third quarter of 2012. There’s a big chance that earnings would beat market expectations, which would benefit US stocks in the first quarter.
4. Hedge currency risk in Japan and Europe. Both economies have launched monetary easing, which led to rising equities but depreciating currencies. Therefore, investors should hedge their exchange rate risk if they pick stocks and funds in Japan and Europe.
5. Investors should place some bets on high-dividend or high-yield products amid the continued low interest rate environment. For example, some US REITs have gained 8.9 percent so far this year.
6. Overweight Indian stocks. The Indian market is likely to shine among emerging markets in view of healthy economic data, low inflation and interest rate cut. The EPS of Indian equities may top that of other Asian peers, but the valuation is still attractive.
7. South Korea could pull a welcome surprise. However, investors should wait for more clarity due to weaker yen and uncertainties from the free-trade agreement with China. Several South Korea funds have posted 1.78 percent to 6.29 percent returns so far this year.
8. Bet on A-H and H shares. A shares have rallied more than 50 percent in the second half of 2014, but the market is undergoing consolidation at the moment. That would benefit dual-listed H shares and the overall Hang Seng Index. However, investors must watch out for a free fall in the second half if the interest rate cut fails to stem the economic slowdown.
9. US and China IPOs. There are plenty of opportunities to place bets on new listings in both US and China markets given bullish market sentiment. A number of companies are eager to raise funds for expansion. Smartphone maker Xiaomi is one.
10. Merger and acquisition. There are abundant M&A opportunities in the wake of cheaper prices of resources and commodities and attractive asset prices in Europe, Australia, Latin America, the Middle East, Africa and other resource-exporting nations. Therefore, it makes good sense to invest in hedge funds with M&A strategy or leading players in related sectors or regions.
This article appeared in the Hong Kong Economic Journal on Thursday.
Translation by Julie Zhu
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