'Stocks are tops for 2010'

Johannesburg - Most South African portfolio managers believe equities will be 2010's top-performing asset class, saying that numerous international stimulus strategies have succeeded in fixing the ailing global economy.

This is according to Jeremy Gardiner, director at Investec Asset Management, who attended a weekend portfolio managers' conference in Cape Town. He said on Monday that other common predictions for 2010 include the outperformance of emerging markets compared to their developed counterparts, while low interest rates would continue to detract from the attractiveness of cash.

"Although emerging markets are going to see better growth than the developed world, they have run very hard on a relative basis," Gardiner said.

"Better value may be found in global equities, which have suffered 10 years' worth of poor performance. In particular, global multinationals with exposure to emerging markets will benefit."

The expectation for inflation is that it should reach a low of about 4.5% by June and then remain within the target band (3% to 6%) for the rest of 2010.

As for the gold price, Gardiner said moderate inflation, an oversold dollar and global economic recovery should slow gold's rise. Still, the metal will remain a good hedge asset against unforeseen economic obstacles.

Lurking risks

Cash has gone from being king to "trash", as central banks are likely to keep rates lower for longer. While current rand strength was seen as unsustainable, investors were warned not to expect too much weakness either.

According to Gardiner, the sweet spot in the fixed interest space is corporate bonds.

"In summary, then, for 2010 benign inflation coupled with interest rates staying lower for longer and reasonable growth will be good for asset prices," Gardiner said.

"Asset prices are neither expensive nor cheap, so significant asset price growth going forward is therefore not expected. However, equity returns should be positive and certainly better than cash.

"Therefore, equities remain the place to be, but more through lack of choice than anything else."

Gardiner warned one of the biggest risks to these forecasts is a so-called V-shaped recovery. This will cause interest rates to rise prematurely and rapidly, putting a further burden on over-indebted consumers and governments.

"There may be an interim correction; however, waiting for the correction has risks. Have a strategy and stick to it. Leave market timing up to the professionals."

- Fin24.com