As this is our first investment letter of the year, let us start by wishing you a happy and prosperous 2013. Indeed it has already been a good start to the year for financial markets.
There is an old investing rule that, “as goes January, so goes the year.” And, when the first week of January is positive, the rule says, the rest of January will be too. Of course, this is not a firm rule. It is simply a reflection of historical statistics, whilst we understand that past performance is not indicative of future returns. But, even so the rule, and the optimistic dynamic on the markets, inspires confidence that the global economy is heading into a year of stable, healthy expansion.
Obviously, markets will not rally rapidly and steadily throughout the entire year. Not least, the economic expansion will be constrained by cuts in government spending. And Europe’s issues will surely cause concern at some stage, even if the central bank stands behind the currency block. But, the stage is set for constructive global expansion. Key drivers for the year include:
- US cyclical expansion: The employment market has expanded dramatically in the last year, creating a self-sustaining tendency in retail sales and business confidence; the housing market too appears to be responding by rising from its lows; and the US energy sector is booming.
- Emerging market growth. After a cyclical cooling over the past year and a half, emerging markets are likely to resume expansion, and continue their structural advancement towards Western income levels.
- Japanese improvement. The new Japanese government is strongly motivated to break the debilitating cycle of the past 20+ years. Whether it ultimately succeeds or not, its policies have a strong chance of contributing to global growth this year.
Amongst all this, inflation is unlikely to become a major issue as global spare capacity remains substantial and central banking policy will remain expansionary, holding rates low to compensate for lower government spending. Nonetheless, 2013 will likely see the beginning of a long and gradual shift out of bonds into equities.
Typically, in this phase, cyclical stocks are most successful, and risk-tolerant investors can certainly look at such ideas. However, more broadly we would encourage the use of yield plays – equities that pay high dividends traditionally return more over the long run and are significantly discounted relative to bond prices at this time. Please contact us for more information.
Best regards,
James
There is an old investing rule that, “as goes January, so goes the year.” And, when the first week of January is positive, the rule says, the rest of January will be too. Of course, this is not a firm rule. It is simply a reflection of historical statistics, whilst we understand that past performance is not indicative of future returns. But, even so the rule, and the optimistic dynamic on the markets, inspires confidence that the global economy is heading into a year of stable, healthy expansion.
Obviously, markets will not rally rapidly and steadily throughout the entire year. Not least, the economic expansion will be constrained by cuts in government spending. And Europe’s issues will surely cause concern at some stage, even if the central bank stands behind the currency block. But, the stage is set for constructive global expansion. Key drivers for the year include:
- US cyclical expansion: The employment market has expanded dramatically in the last year, creating a self-sustaining tendency in retail sales and business confidence; the housing market too appears to be responding by rising from its lows; and the US energy sector is booming.
- Emerging market growth. After a cyclical cooling over the past year and a half, emerging markets are likely to resume expansion, and continue their structural advancement towards Western income levels.
- Japanese improvement. The new Japanese government is strongly motivated to break the debilitating cycle of the past 20+ years. Whether it ultimately succeeds or not, its policies have a strong chance of contributing to global growth this year.
Amongst all this, inflation is unlikely to become a major issue as global spare capacity remains substantial and central banking policy will remain expansionary, holding rates low to compensate for lower government spending. Nonetheless, 2013 will likely see the beginning of a long and gradual shift out of bonds into equities.
Typically, in this phase, cyclical stocks are most successful, and risk-tolerant investors can certainly look at such ideas. However, more broadly we would encourage the use of yield plays – equities that pay high dividends traditionally return more over the long run and are significantly discounted relative to bond prices at this time. Please contact us for more information.
Best regards,
James
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