Although the war in Ukraine looks set to drag on, inflation is expected to ease and central banks could even be cutting interest rates by the end of the year.
If you are looking to invest $10,000 (Dh36,725) over the next quarter, here are three top investment trends to consider right now.
The first could allow you to take advantage of an underperforming safe haven that could swing back into favour this year.
The second is another defensive option that allows investors to take advantage of the fact that the world is getting older and sicker, while the third could help you build a position in an overlooked stock market just before it returns to form.
As with any investment, you must consider both the risks and rewards and should aim to hold for a period of years, not just three months. These three investment opportunities should all pay off, but only if you give them time.
Given its historical reputation as a store of value, gold should have shone in 2022 as inflation eroded the value of rival asset classes.
Yet, it ended the year trading roughly where it began, at just over $1,800 an ounce. That is well below its all-time high of $2,034 hit in August 2020.
One reason is that gold is priced in dollars, which made it more expensive for buyers in other currencies as the greenback soared, hitting demand from key markets China and India.
The precious metal also suffered because it does not offer any yield, whereas savings accounts now pay more as interest rates rise.
Yet, long-term gold investors did well last year, as the strong US dollar pushed up the price by 7.50 per cent against the euro, 14 per cent against the British pound and 16 per cent against the Japanese yen.
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Gold has started the year well to hit a six-month high as investors anticipate US interest rates will peak at some point, says Vijay Valecha, chief investment officer at Century Financial.
“After pulling out of gold in 2022, several hedge funds are venturing back and further reopening of the Chinese economy could also lend support.”
The downside is that demand for jewellery has fallen as discretionary spending declines with the world on the brink of a recession, he adds.
Gold supply is expected to rise at a slower pace of 1.5 per cent at most, down from 3.5 per cent last year, amid ongoing supply chain disruptions.
Investors predict double-digit gains for gold in 2023 to lift the price back above $2,000, according to a survey by precious metals marketplace BullionVault.
Its director of research, Adrian Ash, says fear and doubt across financial markets mean gold and silver are enjoying a new year surge.
“They are attracting speculative inflows as traders see weak growth, strong inflation and a worsening geopolitical outlook ahead,” Mr Ash adds.
A good way to get exposure is to buy an exchange-traded fund that invests in physical gold, such as the SPDR Gold Trust, Mr Valecha says.
After pulling out of gold in 2022, several hedge funds are venturing back and further reopening of the Chinese economy could also lend support
Vijay Valecha, chief investment officer, Century Financial
This is the largest in the world, managing $54.3 billion.
“With a trailing 12-month performance rate of 4.28 per cent, it was also the best-performing gold ETF in 2022,” Mr Valecha says.
He favours buying the yellow metal today.
“In tumultuous times, gold is a reliable asset,” he adds.
Health care stocks
With volatility expected to continue over the next three months, Mr Valecha also favours the relatively low-risk health care sector.
Health care stocks tend to outperform the wider stock market in a recession, as people continue to fall ill — possibly more than before.
“With inflation high and central banks rapidly raising interest rates to moderate inflation, investors may continue to favour defensive sectors like this one,” says Mr Valecha.
Health care ETFs are increasingly popular as a result, he says, notably the iShares US Healthcare ETF from BlackRock.
“This medium-risk option reduces risk by managing a diversified portfolio containing around 116 different holdings, including US health care equipment and services, pharmaceuticals and biotechnology companies.”
Top holdings include Johnson & Johnson, United Health Group, Merck, Pfizer and Bristol Myers Squibb.
The $3.3 billion fund fell 4.55 per cent last year, but that is a relatively strong performance given that the S&P 500 fell by 17.8 per cent, Mr Valecha says.
“It is beating the S&P 500 this year, while providing investors with lower volatility. Analysts are optimistic about health care’s prospects in 2023.”
The last five years have been tough on investors in Japan, as the nation’s stock markets have trailed the rest of the world.
Investing in the country’s stock market today is a contrarian call, but one that could pay off, says Nick Amour, analyst at fund manager Carmignac.
“Japanese stocks have fallen short of their potential and foreign investors have been shying away from them for years. Yet, they are now underpriced according to all standard valuation methods.”
Last month, the Bank of Japan surprised markets by lifting its cap on 10-year government-bond yields from 0.25 per cent to 0.5 per cent.
That little tweak is a big deal in a country that has had near-zero interest rates for decades, and the Japanese yen soared on expectations that years of easy monetary policy is finally coming to an end.
An interest rate hike could follow as the Bank of Japan tries to curb the country’s “sticky inflation”, Mr Amour says.
“This would spark a sustained appreciation in the yen, which would be a draw for foreign investors who have been put off by the country’s feeble currency for the past 12 years.”
Nicholas Price, portfolio manager at Fidelity Japan Trust, says the country is showing resilience as others struggle.
“Unlike many other countries, the Japanese government and central bank offer a positive mix of fiscal expansion and monetary easing.”
Japan was an outlier last year as the Bank of Japan actually welcomed inflation after years of fighting deflation, says Victoria Scholar, head of investments at Interactive Investor.
“As a result, the Nikkei 225 fell a modest 8 per cent in 2022, comfortably below Wall Street’s losses,” Ms Scholar says.
Unlike many other countries, the Japanese government and central bank offer a positive mix of fiscal expansion and monetary easing
Nicholas Price, portfolio manager, Fidelity Japan Trust
Japan’s government has revised its 2023 growth forecasts upwards to 1.5 per cent at a time when the International Monetary Fund projects that a third of the world economy will fall into a recession.
“Japan anticipates improved consumer and business spending, and a pick-up in tourism,” Ms Scholar says.
The danger is that a global recession could hit the country’s exports, and with inflation creeping up to 3.8 per cent, the BoJ may be forced into monetary tightening, which would hit growth.
“So far, its governor Haruhiko Kuroda has denied any chances of a near-term rate hike,” Ms Scholar says.
Investors happy to make a contrarian call can access the country’s markets through a low-cost ETF such as the iShares Currency Hedged MSCI Japan ETF, SPDR MSCI Japan UCITS ETF or the Xtrackers MSCI Japan UCITS ETF.