Forecasting is a mug’s game. You can have a pretty good idea that something is likely to happen, and eventually this will often turn out to be right – but it’s the “eventually” that’s the problem. For example, back in the 1990s, the tech bubble was partly built on the back of the idea that one day high street retailers would be quaking in their boots at the prospect of internet rivals stealing their business.
It doesn’t seem remotely daft now – we’ve already seen both Woolworths and HMV fall prey to online predators this Christmas, while the internet is now the place most people turn to book their holidays; but at the time, with creaky dial-up and dodgy-looking websites, the pioneers got just a bit too far ahead of themselves, and most went bust in a spectacular fashion.
But mug’s game or not, New Year means crystal ball-gazing time, and I’m not going to be the one who breaks the tradition. Here are three themes I think will continue to play out this year – and hopefully make investors some profit along the way.
Top sectors 2007: market winners and losers
1. Gold
A great deal depends on what happens to the US consumer this year. If the US tips into recession, which with the housing market still falling seems a distinct possibility, the global economy as a whole will find it very hard to avoid the fallout.
That’s why it’s not a bad idea to have some gold in your portfolio. Gold normally rises when the dollar falls – which has central banks around the world eyeing it up as an alternative to their vast reserves of dollars. And if volatility in the markets picks up in 2007 from its current record lows, safe-haven investments like gold are likely to be in demand.
2. Nuclear power
Regardless of what you believe about climate change, it’s now an issue taken seriously by governments around the world. One source of energy that looks set to benefit is nuclear – as an alternative to fossil fuels, it generates far less of the greenhouse gases that are apparently heating the planet up. Around 30 new reactors are currently being built across 13 different countries, and both China and India have embraced nuclear power as a fuel of the future.
Uranium, the key fuel for nuclear reactors, has shot up in price recently, after a flood at a key mine in Canada removed a large chunk of future supply from the market. You could buy into uranium miners to profit from this, though they have already seen share prices soar. Ones to consider include Energy Resources of Australia (AU:ERA) or Paladin Resources (AU:PDN).
A better bet might be the companies that clean up after the nuclear industry – particularly as this is a key area of concern blocking development in countries like the UK. One small UK company potentially set to benefit is Aim-listed Redhall (Aim:RHL), which has a strong order book underpinned by its Jordon Nuclear division, which specialises in containers for nuclear waste.
3. Water
The global water shortage promises to continue to develop into one of the biggest stories of the century. The importance of this story cannot be over-emphasised. Two of the world’s nascent superpowers – China and India – know only too well that a lack of water threatens to scupper their economic development. The truth is that none of this needs to be a problem – the world does have enough water to go around. But the trouble is getting it from where it is to where it’s needed, while avoiding as much wastage as possible. In other words, it’s all about infrastructure.
It’s hard to find a pure play on the water story, but one company that might be worth a look is Amiad Filtration Systems (Aim:,AFS) which supplies water filters for industrial and irrigation markets. However, the share price has been volatile and the company’s irrigation unit saw a downturn in the first half of the year, so it’s one to keep a close eye on.
The other – more risky – play on the water shortage is soft commodity prices. Australia, for example, has been suffering its worst drought for a century. The wheat crop fell 61% this year, which has sent the price of wheat soaring – Australia accounts for about 15% of the world’s traded wheat. You can now get direct exposure to soft commodity prices – including wheat – via Exchange-Traded Commodities, which were launched on London Stock Exchange earlier this year