Author: Gary Harloff
Covestor model: Opportunistic ETF
The Chinese New Year is upon us. And the question for global investors in early 2012 is this: Will the Year of the Dragon be a flying and fire-breathing beast for the markets? Here are some of the big macro economic trends I am looking at as the year unfolds.
After several months of slowing growth, the Chinese economy may be hitting a critical juncture. China can no longer afford slower growth: Some 53% (as of 2010) of the country’s population is rural. The economy needs high-speed growth to absorb new workers coming into the workforce and migrating to the cities on the mainland. China’s political status-quo and social stability depend upon a content citizenry. Much depends on whether the European debt crisis will hurt economic growth in emerging markets and North America. (China and Europe are major trading partners.)
At this time, our analysis shows improving markets in Latin America, emerging markets, technology and electronics, banking, and basic materials. Also, I don’t see slowing European economic growth hurting the global economic outlook this year. It appears that the European Central Bank’s roughly 500 billioneuros loan provided to more than 500 European banks has allowed lenders to refrain from aggressively selling off assets as they did in November and December.
In terms of performance, value funds are enjoying slightly higher momentum than growth funds. As for sectors, semiconductor companies have the highest momentum, followed by financials and oil.Gold momentum is rising. Utilities have negative momentum.
On a world scale, from highest to lowest momentum, are Germany, emerging markets, the S&P 500 stock index, and London.The U.S. dollar has nearly zero momentum. We continue our buy signals on the S&P 500, Nasdaq 100 Index, and U.S. 10 year bond yields. We also have a new buy recommendation for gold. May the market be with you in 2012.