Is the next Equity Boom just around the corner? Three Industry’s for your Investment Management.

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Investment ManagementMarkets have been rising in recent months as investor confidence has improved. And this offers the potential for the next big Equity Boom, globally. Cash was king for 2012, but as a slight glimmer of economic improvement is shown throughout China and the US, investors are shifting away from cash and back into the equity markets. To benefit from this potential market rise, you will need to decide where to focus your Investment Management.
Confidence is building and that means investors are looking for better returns than the infinitesimal bond yields or cash rates that have been the “safety” zones through 2012. They are now on the hunt for increased returns, and the equity markets are starting to shine.

That’s not to say the markets are out of the woods in their recovery. There is still the potential that a major negative fundamental, such as a leading global bank collapsing due to too much debt or sovereign default by a European country, could lead to a slipping back into a Recession. But based on the current economic data, the trend that is forming economically, and the simple shift in money flow, and Equities are lining up for the next big Boom.

To help align your investment portfolio for the years ahead, we have outlined our 3 top industry’s for you to consider. Our top 3 industry’s for investing include:

1)     Energy

The world cannot do without energy. Ever since the first light bulb was turned on in the 1800’s, mankind has increased its insatiable need for energy on an exponential scale. The development of the World Wide Web, that is the Internet, only takes this need for energy to the next level.

Data in the following table, provided by the IEA (International Energy Agency), show the changes in Energy supply from 1973 to 2010:

Fuel Category

1973

2010

% Change

Oil

46.1%

32.4%

-29.7%

Coal/Peat

24.6%

27.3%

+10.9%

Natural Gas

16.0%

21.4%

+33.7%

Biofuels & Waste

10.5%

10.0%

+4.7%

Hydro

1.8%

2.3%

+27.7%

Nuclear

0.9%

5.7%

+533.3%

Other

0.1%

0.9%

+800.0%

Totals

100.0%

100.0%

Source: http://www.iea.org/stats/index.asp

What this data shows us is that the world’s dependence on Oil has declined sharply, but that there has been a massive increase in Nuclear energy. As of August 2012, the World Nuclear Association states that there are over 60 reactors currently under construction in 13 countries around the world. There is currently 435 nuclear power reactors operating in 31 countries.

Demand for energy is expected to continue increasing, doubling the 1980 level of required energy. As the statistics above reflect, even though supply of Coal is increasing, it is not at a level required to meet the demand. For this reason, we see two fields for future investment in the Energy space:

i)     Nuclear energy, and

ii)     Natural Gas

For Nuclear Energy, we would recommend to consider listed companies such as ERA (Energy Resources Australia) or PDN (Paladin Energy Ltd). Both are listed on the Australian Stock Exchange. Australia has the largest estimated/known deposits of uranium in the world.

Also consider future developments for energy producing nuclear reactors. The Risks of a nuclear disaster such as Chernobyl, Three Mile Island or Fukushima, are the biggest negative fundamental for the industry. But developments into smaller, more manageable reactor plants that can safely be developed in residential areas have been considered for many years, and are the likely future for this energy source.

Natural Gas has undergone a revolution, with new methods of extraction providing further longevity to the industry. The price of Nat Gas in the US has fallen dramatically in the last couple of years, but is a cheap and clean method of providing energy. More and more Natural Gas power stations are being developed to replace existing dirty Coal stations and as an alternative to Nuclear.

In this space, we like the Exchange Traded Fund (ETF) UNG (United States Natural Gas) as a direct play. For exposure to the Australian and Asian markets, ORG (Origin Energy) or AGK (AGL Energy) are both listed on the ASX.

2)     Agricultures

With global population growth, the world needs more food to feed more and more people. Currently, the world population numbers are at approximately 7 billion people. By 2025 that is expected to increase to 8 billion people and by 2043 reach 9 billion people.

In recent years, the growth rates of world agricultural production and crop yields have slowed, raising the fears that the world may not be able to grow enough food to ensure future populations are adequately fed.

The usage of land to grow crops has produced problems due to the limited space for arable land, global temperatures rising, increased frequency of cultivation of existing fields, an attempt at boosting yields. The world agricultural industry is estimated at approaching the ceiling in which it is possible to expand in these areas.

Add to this the use of Corn and Sugar to create ethanol for bio-fuels, and you can start to see the pressures of the Agricultural industry. So where can we look for opportunities in 2013?

DBA (PowerShares Deutsche Bank Agriculture Fund ETF) is a fund comprised of futures contracts on some of the most liquid and widely traded agricultural commodities, including wheat, corn, soybeans, and sugar.

Each of these commodities has their own seasonal influences for harvesting and planting. However, the long-term picture is that demand will increase with population growth. Be aware of the global demand/supply factors, such as oversupply due to good crops etc.

3)     Leading Market Indices

Finally, if you expect the markets to rise over the medium to long-term, then you can simply invest in a leading market index rather than speculating on a specific sector or individual stocks. There are numerous indices to consider, as well as different means to invest.

Firstly, decide which market you want to gain exposure to. Australia, China, US, or then maybe a region: Asia, Europe. Secondly, choose whether you want to use a Contract for Difference (CFD), Exchange Traded Fund (ETF), or Index Options.

The US is still economically in a consolidation, even though it is starting to show some mild improvements. The recent strength in Housing and Unemployment isn’t sufficient growth to warrant a booming economy. But that doesn’t mean the stock market won’t find investment growth. When investing on the US markets, we use the SPY (S&P500 Exchange Traded Fund), or S&P500 Index Options.

China is still the growth story. Although its’ GDP for 2012 slowed to 7%, any developed nation in the world would cheer with that level of growth. It is estimated that the controlled slowdown is at its bottom and that China will experience its next growth phase over the next couple of years.

We like the Exchange Traded Fund space for gaining exposure in China. This is because they are US listed funds, regulated by US exchanges. So there’s no Risk of brokers or illegitimate operations. The funds we prefer are FXI (iShares FTSE China 25 Index Fund), and CYB (WisdomTree Chinese Yuan).

Finally, the Emerging Markets are still the space for long-term growth. Asia and South America have plenty of room for growth in numerous economies as under-developed nations increase their international trade and GDP. The countries we are interested in include; Brazil, Vietnam, Taiwan, Indonesia, India and Mexico.

To gain exposure in these regions, we again prefer Exchange Traded Funds. These include: EEM (iShares MSCI Emerging Markets Index); EWZ (iShares MSCI Brazil Index); VNM (Market Vectors Vietnam ETF); EPI (WisdomTree India Earnings); and ILF (iShares S&P Latin America 40 Index)

Of course timing is essential when choosing to enter into a long-term investment, let alone a short-term trading opportunity. No matter whether there is an Equity Boom starting, underway or coming to its end. For this reason, we would recommend conducting your Fundamental Research to establish what the strength of the individual investment opportunities provides, and then using Technical Analysis techniques to define when to enter or exit positions.

In next weeks article, we will expand on our long-term view for these three fields and start to dive into the Fundamental data and Technical entry points to assist you in adding these positions to your investment portfolio.

 

Since 1998, Matthew has been involved in the Financial Services industry providing stock, option and CFD advisory services, trading advice, funds management and education services. Matt is an Authorised Representative of Halifax Investment Services, providing analysis and recommendations for trading Covered Calls in the US markets and using Exchange Traded Funds (ETFs) ...
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