By Kurt Schacht, JD, CFA
With the Dow flirting with 14,000, some say the big gains for 2013 may already be in unless Main Street investors are set to join the party. Which brings us to the all-consuming question: What can investors expect in 2013?
In this season of prognostication, CFA Institute has two interesting data points on what’s in store for 2013. First, I have had the pleasure of attending a range of annual forecast dinners held by local CFA Institute member groups around the world this month. Second, to get to the root of the matter, CFA Institute annually surveys members for key insights into market and economic conditions that will define investor prospects in the year ahead. The full 2013 survey results from nearly 7,000 member responses can be found here. The insights from these two sources have been captivating. Here are some of the most common, as well as uncommon themes I was able to glean for the next 11 months. Buckle up!
First, the common themes:
The economy, both global and local markets, should see improvement in 2013, with the exception of key eurozone players mired in the fiscal austerity crisis. According to our survey respondents from the BRIC (Brazil, Russia, India, and China) countries, 2013 looks to be a stellar year in those economies.
Financial Analysis And Politics
The role and value of traditional financial analysis is rendered suspect in an investment environment dominated by the global politics of fiscal austerity and government-prompted financial repression. Find a good, big picture policy analyst.
It will plod along for years, experiencing a variety of fiscal austerity shocks, while experimenting with only partial solutions to the problem. One such half-baked remedy that nearly everyone criticized is the combination of sharp government spending cuts and higher taxes for economic patients in critical condition.
In particular, equities in the U.S., China, Brazil, Canada, and India might also be a good choice. Pessimism is overdone, and there is really no place else to hide in 2013, so equity participation could ramp significantly higher.
Beware Of Bonds
Beware of U.S. Treasuries, in particular. We’ve seen the bottom in rates (this is now the third year in a row for that particular theme).
The Oil Conundrum
Will demand grow enough to absorb the technology-aided boon in discovery and extraction? Supply and energy markets in general are a whole new ball game.
Hold some, the economic and systemic fear factors are many.
Now, for the less common themes:
Learn something about currencies, even if you are a more conventional investor. The opportunities for extraordinary returns with the race to devalue and create inflation going on in major economies are aligning like never before. Exchange-traded funds (ETFs) make it accessible for the average investor.
Eurozone: The Upside Surprise
The region’s politicians will create a timely and effective banking union, and the systemic overhang that nearly everyone fears, and still prices in will give way to massive upside moves.
Eurozone: The Downside Surprise
Germany’s Merkel will be out, and the delicate eurozone cooperation on bailouts will disintegrate and the EU dominos will begin to fall. Stocks will nose-dive.
Fighting The U.S. Fed
Like American jazz singer Sarah Vaughan singing “Whatever Lola Wants,” the Fed wants stocks to go higher. For no other reason than that, they will. The Fed gets what it wants, and everything else is market noise.
If you’re confused, not to worry. With a little work, you fiduciaries out there will find investment opportunities that will let you, and your clients, sleep at night. It won’t be easy, but it will be interesting. Good luck, and happy investing in 2013.
Disclaimer: Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.