This is the Credit Suisse view of the investment world for next year:
Overall, yields will rise as the global economy improves. If you accept that the Australian dollar will weaken, the best place to be will be global equities.
“For Australia we have a flat, boring outlook,” says David McDonald, Credit Suisse’s chief investment strategist for Australia.
It’s not that Credit Suisse is down on the Australian market but there’s a lot more uncertainty as the economy transitions from the mining investment boom.
“We see a potential rebound in the US dollar in the short term which will push down the Aussie dollar and keep the Reserve Bank happy,” he says.
“We suggest you’d be better off investing offshore than onshore.”
Either go direct offshore or look locally for companies with exposure and income outside Australia. Fox and CSL are good examples They both have earnings in the US where the US dollar is expected to continue to strengthen as the economy recovers and any earnings will deliver more in Australian dollars.
Europe: The recovery is slowly gathering pace and an acceleration of earnings growth is expected. Germany and the UK look good.
Seeking the equity alpha: 2014 will be the year of stock selection. “Equities are the preferred asset class of 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. Our current favourites include cyclicals and momentum stocks from the IT, financials and capital good sectors.”
Emerging markets reload: Most will benefit from a cyclical upswing supported by export opportunities to developed markets. Think China and Taiwan.
Fixed income in a world of rising yields: Don’t like bonds. Look to senior corporate loans, distressed debt. “We believe investors should avoid currently overvalued assets such as bank senior debt.”
Forex as the Fed tapers: The USD is set to strengthen against some currencies including the Japanese Yen. “In portfolios a USD long position offers diversification in times of stress. We believe investors should buy USD/JPY, spot or forward and opportunistically sell EUR/USD near the top of its range (currently 1.37).”
Cash rich companies: Will be paying high dividends and having share buybacks. “They may also be prepared to buy others in their own industry.”
China reform accelerates: Stock selection is key to gain exposure to global, regional and domestic firms which will benefit from China’s structural reforms.
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