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With even the mainstream press coming over all wobbly about property as an investment, and investment bank Merrill Lynch warning about the outlook for stocks in the year ahead, several publications are asking what themes investors should be looking at in order to have the best chance of making some money in the mid-term.
We’re gratified to see that several of the tips are sectors we’ve been tipping for quite some time now – but one in particular seems to have caught everyone’s imagination…
The Wall Street Journal’s Smart Money magazine suggests in its March issue, five sectors to invest in that could double your money in the next five years. The idea is not that each will double, but that if you invest in all five, you should do well, because they don’t tend to rise or fall in line with one another.
Among the five are the biotech sector (a play on the ageing ‘baby boomer’ population); microchips (because they’re in everything “from aeroplanes to espresso makers); small stocks (because they have better growth potential); and of course, emerging economies (for pretty much the same reason).
Meanwhile, a recent Sunday Times article looked at five mega-trends, which it reckoned will stand investors in good stead even if markets pull back. Its picks include investing in ’Generation Y’, which is basically a pretentious way to describe China’s increasingly wealthy urban youth and how to take advantage of their spending habits; infrastructure plays; telecoms (mainly because they’ve been out of favour); and gold.
These are all interesting picks, and many are themes MoneyWeek has recommended in the past, such as infrastructure (Where’s all the oil money going?), gold (Investing in gold) and the emerging markets consumer (How to profit from China’s consumer revolution).
But probably the most compelling theme – and the one which both the Sunday Times and Smart Money agree on – is the simplest. Water.
The world is facing water shortages already – it’s one of the biggest factors that could hold both India and China back in their quests to become the world’s next economic superpowers.
There’s a limited supply of drinkable water in the world, and a lot of the trouble is that it’s not hanging around in the same places as the people who need it. And demands on the water supply are only going to grow. There’s the usual threat of population growth, which means you need more water for both drinking and to produce food. Then there’s the fact that as populations get richer, they tend to use more water, and eat more water-intensive food, such as meat.
But it’s not just about eating and drinking and washing – as oil runs out, we are also facing the prospect of needing more water to get at those hard-to-reach oil deposits, such as the tar sands.
So basically, if you are looking for one of the most compelling supply and demand investment stories for the long-term, you can’t go far wrong with water.
In terms of playing the theme, the Sunday Times suggests French group Suez and UK-listed United Utilities, while Smart Money suggests the Powershares Global Water Portfolio ETF, which invests in water stocks. These may be reasonable plays, but Suez and United Utilities are hardly the most exciting stocks in the world, while the ETF invests in a very broad range of water-related shares.
Investors who are interested in purer, more specific water plays – particularly on China‘s needs, where the water shortage is most pressing – should read MoneyWeek’s new water report.
Turning to the stock markets
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Strength in the mining sector helped the FTSE 100 to a fresh six-year closing high of 6,444 yesterday, an overall gain of 24 points, although blue-chip stocks fell back from an intra-day high of 6,451. Miner Anglo-American topped the FTSE leaderboard on expectations of a forthcoming share buyback and bid chatter. Peers Lonmin, Vedanta and Kazakhmys also made good gains. For a full market report, see: London market close.
Across the Channel, the Paris CAC-40 was boosted by gains for retailers including Carrefour and Danone, closing 53 points higher at 5,737. In Germany, the DAX-30 closed 30 points firmer, at 6,996.
On Wall Street, the market was closed for a holiday yesterday.
In Asia, the Nikkei closed a fraction of a point lower, at 17,393, today. The Hang Seng was closed for a holiday.
Crude oil futures had tumbled by over 1% this morning and were last trading at $58.58. Brent spot, meanwhile, was at $56.90 a barrel in London.
Spot gold last traded at $671.70 this morning, whilst silver had climbed 2c to $14.00/oz.
And in London today, record company EMI revealed that it had received an approach from rival Warner Music, adding that there was no guarantee of a firm proposal. Analysts had predicted such a takeover bid following two profit warnings from EMI in recent weeks as new releases, including Robbie William’s latest effort, ‘Rudebox’, performed poorly. EMI shares had climbed by as much as 9% this morning.
And our two recommended articles for today…
Could global markets weather a major shock?
– One of the most striking paradoxes of financial markets today is the perceived lack of spillover from one troubled market, sector or economy to another, says economist Stephen Roach. To find out whether the effects of the US sub-prime lending meltdown or falling investment in China can be contained – and what the fallout from a major geopolitical shock would be – click here:
Could global markets weather a major shock?
The best payment protection: don’t borrow so much
– Payment protection insurance (PPI) is a favourite of high street banks, but is it really the essential ‘safety net’ they’d have us believe? Merryn Somerset Webb thinks not. For more on how to protect yourself against missed payments without getting ripped off, click here:
The best payment protection: don’t borrow so much