Investors should refocus on opportunities among developing and
developed equity markets and industrial commodities rather than gold,
according to Goldman Sachs Asset Management (GSAM).
GSAM noted a preference for US markets over China and India, two out
of the four Bric countries (Brazil, Russia, India, China), a term
coined by O'Neill.
For the first time in five years GSAM's economists are now more
bullish than the consensus view on US economic growth, tipping 3.4%
expansion this year and 3.8% in 2012.
After acknowledging the financial crisis had hurt many, Goldman Sachs
Asset Management chairman Jim O'Neill said, "Despite the severity
of the crisis, people should start forgetting about 2008. It is time
to move forward from 2008 ... people continue to underestimate just
how powerful the world's economy is. We have entered a period of
higher sustainable GDP growth [and] global equity risk premiums are
very high. Unless you have a massive rise in government bond yields,
it is a favourable climate for further appreciation in global
equities."
Timothy Moe, Goldman Sachs chief Asia Pacific regional equity
strategist, recommended reducing Chinese exposure at least until
mid-year while Beijing tackles inflation. He recommended a similar
approach to India, due to investor crowding and its current account
deficit.
David Kostin, Goldman Sachs chief US equity strategist, forecast the
S&P 500 should appreciate 19% in 2011 through a mixture of 14%
earnings growth and price/earnings expansion.
US markets will also receive net equity flows of $750 billion.
Buybacks will jump 25% and dividends should grow 11%, he said. "For
the first time in seven years I am particularly bullish on the outlook
for the US equity market," Kostin added.
Threats to these expectations include state borrowings and federal
debt which is expected to reach its mandated ceiling of $14.3 trillion
in March, according to Kostin.
Moe forecasts that north Asia including Japan should outperform the
south in the near term.
He prefers Taiwan, South Korea and Singapore to India. "We are at
the less sweet part of the cycle for Asia than for the US. Asia came
out of the crisis in much better shape with less impaired balance
sheets than developed markets, so it is now further along the
cycle," he noted.
O'Neill said investors should continue to study closely China's
leading indicators above all others in order to gauge the outlook for
the global economy.
Even if China's GDP growth in the period to 2015 is not as high as
10.1% for 2010, the country's $6 trillion economy had contributed as
much to global growth as the US since 2000.
Goldman Sachs global head of commodities research Jeffrey Currie said
investors should buy crude oil as it is one of the supply-constrained
commodities China most needs.
Platinum, copper, soft commodities and soya beans and cotton were also
recommended buys for the same reason. Currie said industrial
commodities should outperform gold although the precious metal should
remain in investment portfolios at least until the US Federal Reserve
stops its money printing programmes.
"You need to focus on supply-constrained commodities that China is
short of. If China and India chase a commodity and you have too much
of it, you probably want to be short," he added.
Currie said the coming decade would witness a "realignment" of the
status quo, where the US represents 5% of the planet's population
but consume 25% of its oil, whereas the China accounts for 25% of the
global population and consumes only 10% of oil output.
Looking at Japan, Goldman Sachs' co-head of Asia investment research
Kathy Matsui said the country could encounter inflation within the
next 12 to 24 months. This would be a turnaround for Japan which has
been long bedevilled by deflation.
Matsui said first companies and then consumers will begin to spend
more as they realise goods will only become more expensive. According
to her the Bank of Japan has now "drawn a line in the sand" in
terms of the yen and will continue intervening in foreign exchange
markets to weaken its currency against the US dollar to help Japan's
exporters.
At the same time investors should keep track of the yen/won (South
Korea) rate. South Korea is one of the main export competitors for
Japan.
Source: HedgeFundsReview.Com
