5. China breaks out
China hasn’t taken part in the global rally this year, but that could change.
Strategists at Russell Investments predict a soft landing for China’s economy, with a cyclical recovery pushing 8 percent annualized growth for 2013. Managers polled in Russell’s most recent quarterly Investment Manager Outlook were also bullish, with, 62 percent of respondents expecting China’s new leadership to stabilize the country’s declining growth.
In addition, the Russell survey showed bullishness for emerging markets generally, with almost seven in 10 managers optimistic about the region’s development following 2012’s disappointment.
China will lead emerging market growth, according to Merrill Lynch economist Alberto Ardes. Merrill strategists see the strongest gains from consumer-related stocks across the emerging markets, and also favor emerging-market government debt.
Many exchange-traded funds and mutual funds cover China and other emerging markets directly, but investors can also look to funds that own shares of large multinationals based in the United States, Europe and Japan, in particular, which also provide considerable exposure to emerging nations while cushioning some of that region’s volatility.
6. Go for the gold
How does $2,000 an ounce sound as a price for gold? That’s the target Merrill Lynch analysts have set for the yellow metal by year-end 2013 — about 20 percent higher than now.
The easy-money policies of the European Central Bank and the Federal Reserve will propel gold higher, according to commodity strategist Francisco Blanch at Merrill Lynch. Rising inflation expectations should also be supportive. Notably, Blanch sees gold at $2,400 an ounce by the end of 2014. Merrill’s commodity team is also bullish on other precious metals including silver and platinum.
7. Real estate builds
The U.S. housing market is laying a new foundation.
Supply and demand are finding greater equilibrium. Home sales are up, inventory is down, and mortgage rates are at historic lows. In Russell Investment’s most recent quarterly Investment Manager Outlook, 61 percent of respondents were most bullish on real estate for 2013, an all-time survey high. The housing recovery should create construction jobs and boost related sectors such as furniture, building materials and financial services, according to Merrill analysts.
Real estate investment trusts have been on a tear. Real estate mutual funds, many of which invest in REITs, were up 17 percent as of Dec. 20; much of that interest is driven by yield. Some broad-based funds did even better. Baron Real Estate Fund, for example, has gained 42 percent for the year so far.
“We’re in the early stages of a multiyear real estate recovery” for both residential and commercial property, fund manager Jeff Kolitch says.
His strategy includes owning shares of home-improvement companies and other real-estate related plays. Among his favorites: senior-housing provider Brookdale Senior Living, home-improvement retailer Lowe’s, commercial real-estate titans Jones Lang La Salle and hotel chains Hyatt Hotels and Starwood Hotels & Resorts Worldwide.
8. Industrials steam ahead
An improving economy boosts cyclical sectors of the market, and industrials stocks are prime beneficiaries. These stocks rely on corporations’ capital outlays, and many analysts expect companies to spend more liberally with less uncertainty plaguing the global picture.