Saturday, January 06, 2007

2007 - Reading the Tea Leaves

I am not a fan of trying to make annual predictions of where various asset classes are headed. Financial industry professionals who make such predictions for a living seem to get things wrong as often as they get them right and I have no reasonable basis for assuming that my ability to guess the future is any better than average.

That said, it is impossible to make any investment decisions without making some assessment or assumption as to what may happen in the future. Whether I buy equities, bonds, property or put my money in the bank, I am making decisions on what I expect the future to hold for each of those asset classes.

Rather than make predictions, here is a look at some investments I am currently considering.

1. Russia: the Russian stock market has had a very good run but still looks reasonably priced on fundamentals. A significant portion of the country's massive oil and gas (and other commodity) revenues are being spent developing other sectors of the economy. Consumer spending is growing as a middle class emerges and the negative demographic trend is showing signs of reversing. Russia has also accelerated repayments of foreign debt. Political instability and environmental problems remain of concern. Overall, it looks promising.

2. Vietnam: the next emerging Asian tiger? With a large and very young population Vietnam is beginning to grow as economic and social liberalisation gathers pace. Potentially it is still at a much earlier stage of development than other emerging Asian economies.

3. The Japanese Yen: for no better reason than it has showed significant weakness and I am struggling to find many "experts" who rate it a buy compared with other major currencies.

4. The Chinese Yuan: with economic growth and an improving banking sector, the prospects for upwards revaluations of the Yuan in the years ahead look very strong. The issue is whether those upwards movements will be sufficiently large to justify an investment.

5. Hong Kong Property: this remains my largest asset class (by a long way). However, I still need to make further acquisitions to achieve my goal of having half my retirement income derived from rental income. I am moderately bullish on Hong Kong property and would like to make a further acquisition in 2007 if, and only if, I can find a good deal.

No comments: