Wouldn’t you just love it if at this time of year an asset manager predicted an asset class or region was going to do well, and they did not have a fund in that sector?
A bit of healthy honesty would go a million miles, and might help you forget the fact no one got index-linked gilts right as the top performer for 2011, and I, along with a lot of people, thought the GEM story would be strong.
Time for some honesty on investment
Of course the fall back ‘excuse’ for me and all the other GEM bulls is it is a long-term investment story, and I am sticking to that. I have no idea how GEM will do this year, a lot of it seems to be resting on market perception of how well China holds up economically.
But in itself China is more than a one-year wonder, and as investors we have got to get out of this mindset of predicting what is going to be top for 12 months and think about the next five to ten years.
I know that is a bit boring and we all need to ‘sell’ an investment story, but we need to think long term, because one prediction I am comfortable making is the eurozone crisis will not be gone by the end of the year
Thanks to BCA Research from last month and adviser Andy Merricks at Skerritts for a cheery bit of historical analysis which points the way to the future. 1992-93 saw the sterling crisis and a devaluation of the pound of 28%; 1993-94 the Chinese RMB fell 35%; 1994-95 the Mexican peso lost 60%; the Asian Crisis of 1996-98 saw Asean currencies devalue by 55%; the Russian rouble shed 76% in 1998-99; 1998-99 also saw the Brazilian real fall 45%; it was the Turkish lira’s turn in 2001 to drop 60% and the Argentine peso lost 74% when they devalued in 2002. It was only after these extreme crises that the relevant central banks and governments got their fingers out and did something about things to kick-start the economies.
For what it is worth, most of these currency crises were not predicted 12 months previously and were largely unexpected. So this time around no-one is predicting a real euro crash, although lots of people are happy to speculate on some kind of break-up of the eurozone.
A country and currency that could trigger a crisis for the euro is Poland and the zloty. The level of indebtedness both at a sovereign and individual level in Poland is very high, and the country’s banks are very connected to many other major European banks. A run on the zloty would not be out of the question.
The reality is it is going to be another tough year for anyone investing, and it is about wealth preservation again, not accumulation. So let us give up predicting what is going to go up, and just avoid those assets that are going to go down in value. If Tehran can have one of the best performing stock markets in 2011, that just shows what a strange world we live in. Happy New Year.
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at firstname.lastname@example.org
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