By Lauren Young
Article from Reuters
NEW YORK (Reuters) - Buy, Sell or Hold? Many top global investment strategists are looking beyond American borders for the best investment ideas.
With a weak U.S. job market and the upcoming end of the Federal Reserve's $600 billion bond-buying program -- known as quantitative easing, or QE2 -- few speakers at the Reuters 2011 Investment Outlook Summit in New York this week said they are betting heavily on U.S. stocks or bonds. A few had conflicting views about the outlook for emerging markets and commodities.
Here are some of most bullish and bearish investment recommendations.
Rich Bernstein, founder and CEO of Richard Bernstein Capital Management LLC
Sell: Emerging Markets
"I think what people are completely missing is that the risk is not here in the United States. The risk is in emerging markets. There are just monstrous risks in emerging markets right now in my opinion." He cited inverted yield curves -- when short-term rates rise above longer yields -- in Brazil, Greece, Ireland, Portugal and India as red flags. (Historically, an inverted yield curve precedes a recession.) "There is your warning sign that no one is talking about."
Banny Lam, associate director of China and global macroeconomic research at CCBIS
Buy: China
"We think Chinese tightening is coming to an end and inflation should peak in June at about 6 percent. With some of the head-winds starting to clear up, it makes us quite bullish on China." He likes Chinese banks, which bore the brunt of the government's tightening policies and together with insurers make up nearly 30 percent of Shanghai's composite index.
Nic Brown, head of commodity research at Natixis
Sell: Commodities, especially precious metals
Brown sees the most "bubble-like characteristics" in commodities, particularly precious metals such as gold. "It may be a bit too early to suggest end of QE2 will see massive increase in interest rates and gold prices will collapse. Our base case is that within this liquidity-fueled bubble we're closer to the end than the beginning."
David Kostin, chief U.S. equity strategist at Goldman Sachs
Buy: Consumer staples, energy
Kostin sees consumer staple stocks outperforming because companies in the sector are passing higher materials costs onto their users. Energy stocks also look promising. With oil prices high, "a little bit of profitability from every business" is siphoned off into windfall profits for energy companies. What doesn't he like? "We're more neutral on some of the cyclical sectors." Kostin sees the S&P 500 index ending 2011 at 1,450 points. He cut his forecast from 1,500 on May 27.
Matthew Pearson, Standard Bank's head of equity product in Africa
Buy: Ghana and Zimbabwe
Pearson said he was an "ardent fan" of Zimbabwe, which despite political violence, remains superior in infrastructure to much of sub-Saharan Africa outside of South Africa. "The managerial skill-set there is first rate/ ... From an equity viewpoint, it offers great opportunity." He called telecom company Econet Wireless (ECO.ZI) a top pick. As for Ghana, Pearson says it offers the most impressive economic growth prospects in sub-Sahara Africa, but the best way for investors to tap into Ghana's expansion is through its Eurobond.
Todd Harrison, CEO of Minyanville Media
Hold: Cash
Harrison's long-term outlook is cautious. He remains mostly in cash, believing it will take some years before the impaired economy recovers. "It's a question of, 'How do we begin to wean ourselves off this stimulus from central banks coming from around the world?' Then we can answer how strong is the recovery, and not just how big is the rally." The steady injection of liquidity "cannot manufacture housing construction or manufacture employment," he noted.
Harrison summed up his defensive position this way: "I don't own a bunker with guns and gold and cat food. I'm not that guy." But he would not rule out a price level of $2,000 an ounce on gold by the end of the year.
Tobias Levkovich, chief U.S. equity strategist at Citigroup
Buy: U.S. Stocks, with caution
U.S. stocks could fall as much as 10 percent from their May highs, but Levkovich says equities still look comparatively attractive to other assets. He described the U.S. economy as being in a "soft patch" but not on the verge of falling back into recession. "I think equities are a better investment class right now than looking at cash or bonds, but that's different from saying that stocks are an awesome place to be." Citigroup is telling investors to overweight large-cap positions in energy, financials and technology. Stocks on the firm's recommended list include Apache Corp., Marathon Oil, Goldman Sachs, American Express, EMC Corp. and Amphenol Corp.
Joyce Chang, global head of emerging markets at JP Morgan Chase
Buy: Emerging Markets
Chang sees the emerging markets growing at 6.1 percent this year compared to 2.2 percent for the developed world, a rate that when combined with the level of their foreign reserves speaks volumes about the health of the developing world. "Any indicator that you look at, whether it is the fiscal or the debt indicators, still favors emerging markets." Chang recommended that investors take a look at the Peruvian debt markets after the severe selling pressure on Monday. Asked what the most underappreciated markets are this year, Chang identified South Africa and Turkey. "South Africa stands out because you've had quite a lot of currency volatility...we actually like the long end. Turkey is another one...not much time is spent on Turkey but there are opportunities. Why South Africa? The lure is good economic policies, well-developed local markets, and a very strong, well-capitalized banking system. People have to realize that more open economies like South Africa's translates into currencies that are more volatile."
Keywords: INVESTMENT SUMMIT/TRADING IDEAS
Karen Olney, head of European thematic research at UBS
Buy: Banks, insurers, utilities and construction
A balanced portfolio is the best position for a mid-profit cycle, Olney says, adding that investors have to be careful not to bulk up on defensive stocks. She's focusing on sectors where earnings are about to turn and valuations are low -- such as banks, insurers, utilities and construction. On banks in particular, she said UBS liked Scandinavian, Italian, French and UK institutions.
Edward Meir, senior commodity analyst at broker-dealer MF Global
Sell: Commodities
Commodities, especially those with industrial applications like oil and copper, could see selling pressure this summer as an economic slowdown throttles demand. "Barring gold, which is an alternative play on currency, and grains that are weather dependent, I'm bearish on the whole commodities group. I think we're slowing down globally."
"I don't think we're going to go past $10,000 on copper, $3,000 on aluminum and $130 on Brent. I think we've peaked for the year on all that."
Doug Cliggott, U.S. equity strategist at Credit Suisse
Hold: Cash
Credit Suisse is currently underweight financials and consumer discretionary sectors, while it is overweight healthcare and other defensive sectors. "Our theme has been low-beta, relatively stable earnings streams, with preferably decent dividend yield."
The firm is most heavily underweight financials, a sector that has been underperforming the S&P 500. The firm is also recommending a 10 percent cash position. "We are always hunting for what are perceived to be attractive valuations, and improving or steadily improving industry fundamentals. And they are hard to come by in the U.S. marketplace at the moment."
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