GOLDMAN: Here Are Our Top 6 Trades For 2012

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Goldman Sachs just announced its top six trade ideas of 2012. The investment house is moving away from American and European developed markets as it sees continued stagnation from private sector deleveraging.

The global markets team, led by Francesco Garzarelli, estimates that global GDP will grow by 3.2% in 2012, down from earlier forecasts of 3.4%. Nonetheless, concerns in Europe have moved its favourite trades to emerging markets and currency and commodity bets.

From the note:

Free from some of the headwinds in the developed world, many EMs are operating relatively close to capacity, with inflation only just beginning to cool from elevated levels. Policy is gradually shifting towards preventing slower growth, and we think it will move further in that direction, helping to preserve their relative resilience.

[slideshow]
[slide
permalink=”buy-protection-on-the-itraxx-europe-xover-index-1″
title=”Buy Protection on the iTraxx Europe Xover Index”
content=”Target: 950bp

Stop: 680bp

‘We recommend going short the high yield corporate bond market in Europe by buying protection on the iTraxx Xover index. We expect this trade to benefit from the following considerations:

  • The credit quality of European non-financial firms has not recovered to its pre-crisis level
  • Tightening credit conditions in Europe
  • Enormous pressures on fiscal budgets’

Source: Goldman Sachs”
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[slide
permalink=”short-10-year-german-bunds-2″
title=”Short 10 year German Bunds”
content=”Target: 2.80%

Stop: 2.00%

‘Short 10-yr German Bunds for a target of 2.8% (open at 2.3%) and a potential return of +4.5%, stop 2.0%
On our long-held central view, funding pressures and the deterioration of the economic outlook will act as a
‘forcing mechanism’, leading to an agreement on a deeper fiscal integration of the Euro area, possibly in stages, involving budgetary rules supported by effective sanctions.’

Source: Goldman Sachs”
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[slide
permalink=”long-eurchf-3″
title=”Long EUR/CHF”
content=”Target: 1.35

Stop: 1.2

‘With risky asset correlations strongly affecting FX markets, it is difficult to find exchange rate crosses that offer asymmetric expected returns. One strategy that we have been advocating to mitigate this problem is to look for those currencies that are strongly affected by policymakers. The Swiss National Bank is currently committed to keeping the EUR/CHF exchange rate above 1.20. This policy of quantitative easing is consistent with the rapid slowing of the Swiss economy and deflationary pressures.’

Source: Goldman Sachs”
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[slide
permalink=”long-canadian-equities-sp-tsx-vs-japanese-equities-nikkei-fx-unhedged-4″
title=”Long Canadian Equities (S&P TSX) vs Japanese Equities (Nikkei), FX unhedged”
content=”Target: 120

Stop: 90

‘In equities, we recommend a long position in Canadian equities via the S&P TSX relative to Japanese equities via the Nikkei, FX unhedged. … We like this pair trade for … a bullish view on the commodity complex, and energy prices in particular, the Canadian equity market ought to be a clear beneficiary given its significant energy and materials weights.’

Source: Goldman Sachs”
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[slide
permalink=”long-a-global-rebalancing-basket-cny-myr-vs-gbp-usd-5″
title=”Long a Global Rebalancing Basket (CNY, MYR vs. GBP, USD)”
content=”Target: 107

Stop: 98

‘Large current account surpluses, and related signs of excessive FX reserve accumulation, are an important feature of persisting global imbalances. In particular in Asia, a number of countries record large surpluses in combination with heavily managed exchange rates and persistent inflation pressures. The currencies of these countries remain strong candidates for additional nominal appreciation. The CNY and MYR are typical examples, with the latter adding commodity exposure to the appreciation pressures.’

Source: Goldman Sachs”
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[slide
permalink=”long-july-2012-ice-brent-crude-oil-futures-6″
title=”Long July 2012 ICE Brent Crude Oil Futures”
content=”Target: $120

Stop: $100

‘As the downside risk from the European debt crisis has intensified, so has the oil market’s incentive to draw down inventories ahead of the threatened global economic recession. In particular, in its attempt to price in the potential that the European debt crisis may trigger a new global economic recession, the oil market continues to set crude oil prices too low to clear the tight physical markets, leading oil inventories to reach exceptionally low levels for the time of year.’

Source: Goldman Sachs”
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[slide
permalink=”citi-has-its-own-list-of-countries-fueling-growth-7″
title=”Citi has its own list of countries fueling growth”
content=”Across the Street, Citi has its own list of places to invest.
Click here to see the 15 economies that won’t cool down >
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[/slideshow]