This feature is part of our FREE daily Money Morning email. If you’d like to sign up, please click here: sign up for
Money Morning
.
First things first – welcome back, and Happy New Year!
And if you believe the financial pundits, we do indeed have happy times ahead in 2007. House prices will continue to grow, stock markets will keep rising, and life will be much the same as it was in 2006, give or take the odd minor ‘correction’.
Even the US housing slump, which is still unfolding, seems to have barely registered on the radar of many experts.
In fact, many seem to think that the US is in fact, the best ‘contrarian’ pick for this year…
Fund managers have an intriguing idea of what being a ‘contrarian’ investor actually means.
For example, of the 14 fund managers and financial pundits consulted by The Telegraph at the weekend, no fewer than four of them – nearly a third – picked out America as their top country of choice to invest in for 2007. In fact, America was the most popular country of all, with only Germany and Japan being tipped by more than one pundit.
And yet, those who tipped it, largely seemed to believe they were canny contrarians, going against the herd; not realising that in fact, they were the herd.
Sure, tipping the US does seem to go against the grain. The year ended with the dollar in near-freefall, and the housing market in a similar position.
But the point is this – regardless of how bad the situation in the US looks, no one can yet really bring themselves to believe in a world where it is not the dominant financial and political power. Betting against America – and more specifically, the American consumer – has far more often than not been a losing bet.
The truth is that for financial experts, tipping the US is a bit like tipping Vodafone. It’s a huge, stable, massively popular investment. It might not be the most exciting performer in the world, but it’s unlikely to go bust or leave them nursing hefty double-digit losses. And most importantly, large numbers of their peers are backing the same horse, so if it performs badly, they won’t be the only ones left with egg on their faces.
The fact that there are currently many reasons to be worried about the US economy is just a bonus. It means that those who tip the US get the cachet of apparently going against the consensus, whilst still getting the security of backing a developed market.
But in reality, it would be a very strange world indeed where the US ended 2007 as the best-performing global stock market. If America does make it through the latest storms in the housing and currency markets, and enjoys a strong year, then those emerging markets which are heavily correlated to the US are likely to have an even better year.
On the other hand, if the US does fall into recession, then many other global markets will be hammered too. But in that case, Europe or Japan would probably be among the better places to be invested.
We have a look at what the experts think is in store for world markets in this year’s first issue of MoneyWeek (out this Friday).
If you’re not a subscriber, you can get access to all the content on the MoneyWeek website and sign up for a three-week free trial of the magazine, just by clicking here: Sign up for a three-week free trial of MoneyWeek. (/file/194/subscribe-from-not-logged-in.html)
Turning to the stock markets…
Enjoying this article? Why not sign up to receive Money Morning FREE every weekday? Just click here: FREE daily Money Morning email.
Stocks closed lower in the final session of the year in London on Friday. The FTSE 100 ended 2006 at 6,220 with the biggest falls recorded in the utilities sector. For a full market report, see: London market close.
Elsewhere in Europe, the Paris CAC-40 and German DAX-30 both closed 1% higher on Friday, at 5,599 and 6,659 respectively.
Across the Atlantic, all three major averages ended Friday’s session lower, but booked their best annual performances since 2003. The Dow Jones closed at 12,463, having gained 16.3% over the course of 2006. The S&P 500 was 6 points lower, at 1,418. And the Nasdaq was 10 points lower, at 2,415.
In Asia, the Hang Seng closed at an all-time high of 20,310 today, soaring 345 points on optimism over China Mobile‘s earnings. The Nikkei was closed for a holiday.
Crude oil was trading 21 cents lower at $60.84 this morning, whilst Brent spot was at $59.97 in London.
Spot gold had risen to $637.50 this morning, its highest level in nearly a month.
And in London this morning, property firms Land Securities and British Land both rose on their first day as real estate investment trusts (REITs), respectively gaining as much as 0.9% and 1.6%.
And our two recommended articles for today…
An economist’s predictions for 2007
– Morgan Stanley economist Stephen Roach looks at what to expect in 2007: there will be setbacks in the near future, but the long-term outlook is still bright. For Roach’s top three predictions for the year ahead, click here: An economist’s predictions for 2007
Where to invest to maximise absolute returns
– Stock markets may have soared in the last days of the old year, but private investors should be wary. Paul Van Eeden explains why fund managers and individual investors have very different goals – and should follow very different strategies. To find out why he thinks gold is still your best bet, read: Where to invest to maximise abolute returns