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Bank of America Merrill Lynch’s Global Equity Strategy team, led by Michael Harnett, recently released a new investment strategy report.For 2013, they have a 1600 target for the S&P 500, an increase of about 10% from here.
The report also highlights 10 big global themes that’ll drive investment returns for years.
The themes include global obesity, emerging market wealth, and US energy independence.
All of the investment ideas are considered in the backdrop of a deleveraging economy and the rotation out of bonds into stocks.
Rationale: Obesity accounts for 20% of annual medical spending in the U.S., and levels of obesity have reached 20% in some Chinese cities.
Buy: Pharmaceuticals and healthcare stocks, nutritional food stocks, weight loss stocks, and sporting goods stocks.
Rationale: Extraction technology (fracking) has put the U.S. on a path towards energy self-sufficiency.
Buy: Domestic oil producers, oil refiners, oil services firms, chemicals, retail, transportation, and utilities stocks.
Rationale: Global water demand will exceed supply by 40% in the next 20 years, and is likely to be less abundant than oil by 2030.
Buy: Water, fertilizers, crop science, farming, energy efficiency, biofuels, and renewable stocks.
Rationale: Extreme central bank accommodative monetary policy could lead to extreme macro fluctuations. Even risk tends to be high when individuals and firms are deleveraging.
Buy: Gold, gold funds, TIPS with 5-10 year maturities.
Rationale: The promise of close to zero rates until 2015 from the Fed pushes down yields -- high-yield assets will remain in high demand.
Buy: High yield bonds, emerging market bonds, dividend-yielding stocks, and selective REITs.
Rationale: Low economic growth is likely to continue, so you should chase firms, sectors, and regions that offer the best opportunities.
Buy: Global mega-cap stocks, technology stocks, and debt & equity in emerging markets.
Rationale: favour strong balance sheets until the financial and credit markets have recuperated.
Buy: Creditors over debtors, companies over countries, and the global best of breed stocks.
Rationale: Research forecasts a 36% return over the next 10 years.
Buy: Financials, mortgage-backed securities, REITs, and home renovation retailers.
Rationale: Due to the sovereign debt crisis, European assets are low by historical standards.
Buy: European best of breed stocks, exporters, dividend growth stocks, European bank bonds.
Rationale: Emerging markets are projected to contribute $0.81 to every dollar of global growth this year.
Buy: Consumer companies with exposure to emerging markets, emerging markets healthcare funds, Russian domestic demand stocks, and the frontier markets of Saudi Arabia, Nigeria, and Qatar.
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