Seven Top Investment
Ideas for 2014
By:
Published: February
11, 2014
As the global economy continues its recovery, Credit Suisse’s
top investment ideas focus on carefully selected themes which aim to help you
generate more bang for your buck in 2014. In this video, Giles Keating, Head of
Private Banking Research, explains the rationale behind the ideas and their
investment implications.
As the
global economy continues its recovery, Credit Suisse’s top investment ideas
focus on carefully selected themes which aim to help you generate more bang for
your buck in 2014. In this video, Giles Keating, Head of Private Banking
Research, explains the rationale behind the ideas and their investment
implications.
Idea 1: Europe’s Recovery
Rationale: Europe’s
recovery is slowly gathering pace and Credit Suisse anticipates an acceleration
in earnings growth in 2014. Valuations are more attractive than in the US.
Investment implications: Buy (or overweight) European stocks.
Among countries, Credit Suisse currently favors Germany given its operating
leverage towards a recovery. For higher-risk investors: Europe-wide small and
mid-cap stocks, cyclicals and selected banks on low valuations. For lower-risk
investors: Dividend-yielding stocks offer potentially lower risk with higher
yields than fixed income markets.
Idea 2: Seeking Equity Alpha
Rationale: Equities
are the preferred asset class for 2014. After a good performance in 2013, the
market recovery is set for a new phase in which active style, sector, country
and stock selection can generate superior returns, noting that within both US
and European stock markets, correlations among equities have fallen markedly.
Investment implications: Choose sectors, styles, countries and
individual stocks based on prevailing market dynamics; cyclicals and momentum
stocks from the IT and capital goods sectors are recommended.
Idea 3: Emerging Markets Reloaded
Rationale: During
2014 Credit Suisse expects that most emerging markets will benefit from a
cyclical upswing supported by export opportunities to the developed markets.
Emerging market trend growth rates remain above those of developed markets
(albeit lower than before) and could further re-accelerate with structural
reforms. Deficits still a source of volatility.
Investment implications: Gain exposure to export-led,
growth-sensitive countries, such as Taiwan, and also look for those where the
potential for successful structural reforms is not yet fully discounted.
Compelling valuations can still be found (for example, China) where long term
fundamentals – like consumption, urbanization, export potential – remain key
investment drivers. Take a position in companies that benefit from emerging
market cyclical recovery.
Idea 4: Fixed
Income in a World of Rising Yields
Rationale: The
need to obtain reasonable fixed income returns at a time when duration is
unattractive since yields may rise on an economic recovery and tapering, and
credit spreads are low.
Investment implications: Focus on short-duration assets in
areas where value still exists, like corporate senior loans (usually held via a
fund), bank subordinated debt, bank CoCos, corporate hybrids and distressed
debt. Credit spreads on high yield and floating rate debt are near historic
lows but limited amounts of such debt from strong issuers can be included in an
overall portfolio. Avoid overvalued assets such as bank senior debt.
Idea 5: Forex as the Fed Tapers
Rationale: With
tapering, the USD is set to strengthen against some currencies, like the JPY,
and trade at the stronger end of the range against others, for example the EUR.
In portfolios, a USD long position offers diversification in times of stress.
Investment implications: Buy USD/JPY, spot or forward.
Opportunistically sell EUR/USD near the top of the range. Within emerging
markets, sell currencies of deficit countries against those of surplus
countries and of reformers.
Idea 6: Cash-Rich Companies
Rationale: Corporate
cash piles remain near multi-year highs. Rising CEO confidence levels and
pressure from shareholders to invest in growth or return cash bodes well for
M&A activity.
Investment implications: Moderate risk-appetite investors
should favor companies with a strong free cash flow and the ability to buy back
shares. Investors with higher risk-appetite should prefer companies that are
the potential targets of industry consolidation or which will benefit from
asset disposals through restructurings.
Idea 7: China Reform Reaccelerates
Rationale: The
Third Plenary Session of China’s Central Committee announced a clear direction
for structural reforms, with accelerated product and financial market
liberalization which should accelerate economic rebalancing, from exports and
investment towards consumption. Concrete measures are expected in the coming
months.
Investment implications: Stock selection is key. Gain exposure
to global, regional and domestic firms that can benefit from China’s structural
reforms with a focus on the private companies, services sectors and winners
from economic rebalancing towards consumption. CNY and CNH (Chinese Offshore
Yuan) remain our top emerging market currency ideas and are expected to sustain
gradual appreciation in the course of exchange-rate reform.
Photo of the Bull statue at the Frankfurt Stock Exchange by Rob
Wilson, courtesy of Shutterstock.com
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