CNBC Comment: How to invest amid fresh market highs
IF THERE’S a full-blown war, we sell. If there’s a semi-war or ongoing tensions, we keep buying.” Most of the discussions I’m currently having with my guests sound a lot like this. While war is no good for anyone, fears about Ukraine and Russia are perceived by most investors as isolated, and many simply aren’t directly exposed.
And over the last five years, since markets hit financial crisis lows, the Nasdaq is up around 230 per cent, and some European indices, like the German Dax, are up around 100 per cent. So what should you be looking at in markets that continue to flirt with new highs?
ING’s Valentijn van Nieuwenhuijzen told me that his firm has changed its allocation stance – it still likes risk but, compared to the start of the year, has shifted away from equities. He points out that, while equities have been a consensus trade, it seemed to be capping the upside. ING is still long on equities, but only with a small overweight. It has now also moved towards commodities with a slight long position, after a very long streak of negative performance.
Nieuwenhuijzen says the asset class he likes most is global listed real estate, which will benefit from the lack of upward pressure on bond yields, and perhaps also from doubts surrounding the inflationary outlook.
He also thinks there is going to be a stronger corporate capital expenditure cycle in 2014. He foresees volume growth too, and says it won’t just happen on the back of further improvements in margins. Instead, demand and the global cycle will strengthen, especially in developed markets, and that will push up earnings growth. We’re seeing it already in the US, and Nieuwenhuijzen suggests it will happen in Europe and Japan as well. But there is room for ongoing positive surprises in the corporate sector in 2014.
VALUE IN BIG OIL
As Jupiter’s Absolute Return Fund manager James Clunie says, you have to take a bit of risk. If you don’t take any risk, you’ll get your long-term value eroded. On equities, Clunie thinks there are some out-of-fashion opportunities. He’s interested in large oil companies; people have been disappointed with the big capital expenditure of previous years, and the low returns. Now, the language investors are using is very positive: we’re seeing better capital discipline, more share buybacks, lower costs, and more selectivity on new projects. That should mean lower asset growth, says Clunie, but a better perception of those stocks.
Clunie thinks good opportunities lie in the out-of fashion, cheap and unloved stocks. He mentions Statoil, BP, Total – these are companies that are beginning to talk the language of better capital discipline and better project selection.
Louisa Bojesen is presenter of CNBC’s European Closing Bell. @louisabojesen