Nutshell : Move into Emerging Markets, Developing Markets, Pacific Funds and Gold.
Long Term :
1. India
+Democracy
+English Speaking Population
+Infrastructure projects yet to happen at a bigger scale.
2. China
+Cheap labor
-Communism(Financial books are cooked up)
+Communism, hence more predictable behavior
It is obvious that currently wealth is being created in Asia and hence the purchasing power is bound to go up in those places, eventually triggering more profits for companies capturing those markets. US is not a great place to invest as compared to India and China. Recently one of my friend had visited India and was nonplussed by the growth rate that most Mutual Funds were achieving. While it is a good idea to invest in the local country mutual funds(MF),I would suggest not to invest in these MF directly, but invest in some American Funds that invest in these countries. I say so because it is very easy for US Funds invested in those counties to pull their money out and move to some other country than a local country fund, in case things go wrong. The 1997-98 South Asian Contagion has shown how local funds lack the agility to make a move as compared to the FII.
Energy might have good return in 2006. Energy stocks are already high and this year may be the peak of it, which means one should be prepared with the exit strategy, but still hold on to it. Be vigilant on this sector !!
Investments in Health care and Defence might do well in 2006 and ahead.
GOLD!!! would be a good idea to diversify into. This is applicable only to people who have most of their investment in US Mutual Funds. The current financial health of USA, especially the Trade Deficit and Current Account Deficit are indicating that US$ might depreciate( basically all other currencies will appreciate) and hence it may not be a safe haven for investment. But if US$ goes down then a US MF investment that makes 15-20% will shed 5-8% in terms of the US
The slow run up of some other currencies against the US$ has started. Gold has been the worst investment in the last 25 years( except the past 3 years). In the current globalized world, it is condescending to say that countries would like to hold their reserves primarily in US$. Countries are trying to diversify their forex holds away from US$ since many expect the US$ to depreciate. With the loss of superiority of US$, I guess it makes sense to hold some gold, which is a good hedge against the stocks and also against the risk of US housing bubble meltdown and its eventual global economic recessions. China plans to bump up its gold reserves to approx. 2600 tons from the current levels of approx.600 tons. In the past 15 years Japan has seen how the worst financial environment in its country can erode all its wealth, which has taught its people that Gold is the best value holder for all the money that they make during the hay days. With that change in attitude and the dark financial days behind them, Japanese citizens have found a new love for gold and hence the import of it is going up in Japan(Resembling the Indian culture). So get into Gold!! It's bound to go up further.
Alan Greenspan hiked the interest rate by 25 basis points and is out. Expect another interest rate hike, for sure, in the next 6 months and may be another one by the end of this year. All this boils down to one thing, "Don't get into real estate or related funds".
Another sector that might do well is the Neuclear Enery Reactors -companies that make or are in the supply chain of Neuclear Enery. Keep a watch on the companies that make Nuclear reactors, they will do well in the coming 5 years. It might be a good time to identify these companies and get them into your portfolio.
Happy investing : MMKBX, FLATX, FDVLX, FPBFX, TEDMX, FLPSX, FSDAX, YHOO, DNA and get some Gold!! (GLD, IAU, GoldMoney.com)s purchasing power due to the depreciation of the US$.
