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Key Investment Themes for 2011 - Global Perspective
January 10, 2011

Key Investment Themes for 2011 - Global Perspective

Author : iFAST Research Team

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Majority of investors in India have had an allocation to domestic equity funds, with a negligible exposure to global funds. Even though fund houses have been launching international funds on a regular basis, the response has not been very positive. Fundsupermart is of the view that the global economy is on a recovery path and the global markets are expected to touch record highs by the end of 2012. In this scenario, we advise our investors to allocate a small part of their portfolio to these funds for the purpose of avoiding concentration risk to a single country i.e., India and take advantage of the upside potential expected from other strong markets.

  1. Growing confidence about sustainability of global economic growth, with growing investor risk appetite. Year 2009 was the turning point for world marked by the global financial crisis, with first half of 2009 experiencing severe economic contractions while second half being the start of an economic recovery. In 2010, the global economic recovery was substantiated as the World GDP rose by an estimated 4.80%, compared to the contraction of 0.60% in 2009.

    In 2010, however, the recovery came amidst a lot of nervousness in the financial markets, with most investors worrying about the possibility of a double-dip recession. 2011 will see continued recovery of the global economy, accompanied by growing investor confidence of its sustainability and rising corporate business investments.

  2. Record high earnings and revenue to be seen in many major countries. As the economic recovery continues in the second full year, many key regions and countries will be witnessing record high earnings in 2011. Initially, the profit growth was driven partly by cost controls but, from 2011 onwards, several regions and countries are starting to see record high revenues causing the recovery momentum to be increasingly broad based and sustainable.

  3. Emerging markets to be the growth drivers of the world. For a long time, many people have been living with the notion that US is the driver of global economic growth. However increasingly, investors would start to accept that going forward, various emerging markets especially China, are going to be the real drivers of global economic growth. That is, even if the GDP growth rate in the US is uninspiring, the world can hum along.

  4. Monetary policies to transition from an ‘easing mode’ to a ‘tightening mode’. In 2010, as investors and government fear a potential ‘double-dip’, there was a lot of attention on the ‘quantitative easing (QE II)’ that the US put in place. As global confidence increases about the sustainability of the economic recovery, fears of recession will be replaced by increasing fears of inflation. This is particularly important in the Emerging markets, including China and India. 

    As 2011 progresses, central governments around the world will increasingly transition from an ‘easing mode’ to a ‘tightening mode’. Long-term government bond yields will start to increase (from a long base), and many central banks will start to hike interest rates.  This will generally be seen as negative news for stock and bond markets, but we do not think that it will derail the overall positive environment for the equity markets.

  5. Resurgence of optimism about technology, 10 years on. 10 years after the dot-com crash, investors remained generally cautious about the technology sector. As a result, despite a year of record earnings for the sector in 2010, consensus spent a large part of their time worrying about a potential downturn in 2011.
    We believe that as 2011 progresses, investors will become increasingly upbeat about the global technology sector. They will recognise that many years of corporate under-investments has led to the need for businesses to start boosting their capital expenditures in the technology sector in a more broad-based manner. Consumer spending in this sector will continue to be strong, after a robust growth rate in 2010, driven by mobile devices such as smart-phones and tablets.

    Just as importantly, we believe that the valuation for the sector will start to expand again, in line with the growing optimism towards the sector.

  6. Gold to lose its lustre. The world has been in love with gold in the last few years. As 2011 approaches, predictions by many people of another strong year for gold would continue. However, it is clear to us that the forecasts of a strong gold sector are becoming increasingly less fundamentally driven, since the genuine demand for gold has not been strong. Instead, the demand for gold has been driven by investment or speculative demand.

    The ‘demand for gold’ story has been driven by stories of ‘a weak USD’, ‘the need for a safe haven as different kinds of crises continue’ and ‘the lack of strong investment cases in other asset classes’.  As 2011 unfolds, we believe that such stories will no longer carry strong weight.

  7. Emerging market currencies to strengthen vis-à-vis US and Euro. We expect that investment flows to the emerging markets to be strong in 2011, in search of strong growth rates and yields. This should cause many emerging market and Asian currencies to continue to be firm in 2011.

Recommended Funds

Our positive views on the emerging markets and particularly, the Chinese economy makes  Mirae Asset China Advantage Fund and Principal Global Opportunities Fund our Recommended Global funds.

iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.


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