Taking stock of the top trades for 2011
Wall Street strategists predict profit in gold, silver and oil but the more adventurous investors should look to Latin America, writes Roisin Burke
THE wealthiest people in the world pay a fortune to investment-banking titans like Goldman Sachs, Morgan Stanley and Bank of America Merrill Lynch for advice. But here's our free rundown of the top trades they expect to make money in 2011.
Big American Banks
After several years of pessimism the most profitable Wall Street firm, Goldman Sachs, has faith in stocks in big US commercial banks with big market capitalisation.
Its global team expects the sector to grow by 24 per cent in 2011, as economic recovery boosts loan and wider credit demand. These large cap banks could even pay out dividends next year, it predicts.
Check the banking stock indices to see if the likes of City Group, credit card provider MBNA and more might be worth buying into.
With two-bit 'we buy gold for cash' shops mushrooming up all over the place there's an increasing mania to gold's glistening popularity. So is there a golden bubble inflating close to popping point -- just like it did during the Eighties?
It's not about to burst yet, in Goldman's view. Gold and precious metal futures will continue to climb in price, its strategist types predict, with gold reaching $1,690 an ounce by the end of 2011, and even higher after that, peaking only in 2012. Bank of America (BOA) Merrill Lynch and JP Morgan see gold possibly rising 25 per cent in 2011.
Black gold is another favoured Goldman top trade. As the US economy improves fuel demand will drive the oil price up to $105 a barrel in 2011, strategists say.
Is silver the new gold? BOA Merrill Lynch rates 'the poor man's gold' to remain strong next year, having been a stellar performer in 2010 already. "Longer term we expect silver to test its 1980 high of $50," it predicts.
One strategist thinks silver may outpace gold in gains next year, and German investment force Deutsche Bank puts silver among its top 10 commodity trades for 2011. Top wealth adviser Credit Suisse also predicts it will continue rising.
TOP Clothing brands
Companies making designer watches, clothes and electronic gadgets will all be on the up in the New Year in Bank of America Merrill Lynch's top stock outlook.
Top performing "discretionary consumer durable" goods stocks in this line at the moment include Movado, which makes and markets clothes and watches for Hugo Boss, Tommy Hilfiger and Lacoste. Also keep an eye (and possibly a few euro) on Calvin Klein, Guess, Levi's producer G-III Apparel and surfer favourite Quicksilver.
Washing-machine maker Whirlpool and DIY goods firm Black & Decker have featured strongly. Stocks in IT firms like electronic equipment giant Tessco and computer keyboard maker Key Tronic and pharmas like GlaxoSmithkline and Astra Zeneca are viewed favourably by BOA for next year.
Put your conscience in your pipe and smoke it. Tobacco equities are a smoking hot tip for next year that could boost a portfolio, according to BOA.
Phillip Morris parent the Altria Group and pungent French Gauloises cigarette maker Altadis are big listed names in tobacco as are B&H maker Gallaher and British and American Tobacco.
Both Goldman and Bank of America are bullish about commodities as a whole. Even with fiscal tightening measures being taken in booming emerging markets like China's, commodity prices will push higher.
Returns in the region of 28 per cent on a basket of commodities shares that includes crude oil, copper, cotton, soya beans and platinum are predicted. Wealth management giant UBS thinks cotton, which gained 92 per cent this year to metal's 76 per cent may even outstrip both silver and gold in 2011.
Short the dollar and get into the Chinese yuan, Goldman suggests. What with more quantitative easing (QE) possible in the US and international political pressure on China to rein in its own QE measures, it expects the Chinese currency to continue to rise in 2011.
"We favour Latin America's emerging markets over Asia's," BOA's wealth planners say. Getting into commodities, materials, industrial and energy stocks in Argentina, Chile, Colombia, Mexico or Peru could be lucrative.
Investing in emerging markets like these in 2011 is a good but risky bet, however. "Strong but volatile" is how the investment giant's strategists put it.
Japanese company stocks have been cheap for a long time and Goldman and others think they're due a rally. A stronger global market will mean stronger demand for Japanese exports, feeding back to a stronger domestic Japanese economy and improved demand at home, boosting native stocks, the logic goes.
Morgan Stanley's top strategist Jim Caron waxes lyrical about 'curve steepeners' and the attractiveness of 'front end receivers' and 'break even flatteners' in his 2011 forecast. In English, that means don't touch government bonds.
"Inflows into bond funds have been running at record pace in 2009 and 2010. It may reverse direction in 2011," he warns.