2013: So, what do I do with my money?, BlackRock asks

The BlackRock Investment Institute (BII) has revealed its investment recommendations for 2013.
According to the firm, investors will need to keep a close eye on the impact of government policy – first and foremost, the urgent effort to avoid the looming “fiscal cliff” in the US, which will drive the direction of both the US and global economies in 2013.

“Our big questions for 2013 are whether the wave of ultra-loose monetary policies and quantitative easing has crested and if private sector credit can stage a modest recovery,” said Ewen Cameron Watt, BII’s chief investment strategist.

He added: “Trillions of dollars in monetary stimulus and record low interest rates have failed to spur much credit growth and economic activity so far. But what if this changes?”

Here are BII’s recommendations for each asset class.

Fixed Income: Danger in Safety

Prices of safe-haven government bonds and similar assets could plunge when yields start to rise. Low yield = high price risk. We like global high yield and US munis for income – but do not expect much capital appreciation. We favour emerging market debt.

In Europe, we prefer Italian and Spanish bonds over debt of weaker core countries. We are bullish on commercial mortgage-backed securities and collaterised loan obligations.

Equities: Global Smorgasbord

We like global companies with strong balance sheets, steady cash flows and growing dividends. We favour high-quality US stocks, global energy and emerging markets. We are bullish on domestic consumption plays in Brazil and China, North Asian cyclical stocks, and Mexican banks and industrials. We like discounted exporters on Europe’s periphery and small “self-help” UK companies.

Commodities: Long View

We like metals with long-term supply gaps and agricultural commodities. China’s
appetite is huge.

Currencies: Dollar Bulls

We are bullish on the US dollar due to the country’s energy boom and long-term growth prospects.
Good and Bad Income Income investing remains our strategy of choice in a zero-rate world. The hunt for yield has created pockets of overheating and narrowed valuations between top-quality and less desirable income assets. The report details the state of play in fixed income, high yield, emerging market debt, municipal bonds, dividends, and real estate investment trusts.

Pain Trades

Our biggest contrarian idea is buying Japanese exporters while selling the yen. Other pain trades include selling “safe” tobacco stocks, buying US companies with cash piles abroad, and buying securities of European and US financials. We have warmed up to Indian equities after the country’s reforms on foreign investment.
 

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