Podcast 1st January 2016
The year 2015 has not been good for investors with asset classes across the spectrum delivering flat to negative returns. Equities were largely flat to down, bond yields were flat and commodities were down. Going into 2016, there is circumspection all around and there is hesitancy to take risk.
So where should you invest your money in 2016. Should you keep it in safe assets such as risk free bonds or highly rated corporates or banks? Such assets will not grow your money in real terms and you could lose opportunity to invest elsewhere.
Commodity prices have dropped sharply, is it worth bottom fishing? Outlook for commodities is still uncertain given China growth issues and Fed rate hikes and is not likely to fetch adequate returns for the risk you are carrying.
Would equities prove to be a good investment in 2016? Yes and No. Let me come to No first. Given the extremes in the current world economic environment, wrong equity bets can prove disastrous and you may not recover from the shock. For example those who invested in commodity stocks at year lows in 2015 saw further sharp downside. Similarly many other stocks have gone down from lows and could continue to go down in this disruptive business and economic environment.
Coming to the Yes, the right stocks can fetch strong returns. What are the right stocks? Companies in sectors that are seeing growth, companies that are able to gain leadership position in businesses due to innovation, companies that are benefitting from low inflation, low interest rates and low commodity prices and companies that are able to take advantage of the shift towards clean energy are worth investing in.
Businesses that are not really sensitive to economy would also make good investments. Given uncertainty in global economic growth, economy sensitive stocks and sectors would struggle to grow.
Sectors that are seeing growth are disruptive technology, renewable energy, ecommerce and few services such as content streaming. Airlines are benefitting from low fuel prices, low inflation and low interest rates but competition is extremely heavy and only a few Airline companies are doing well. It is worth identifying the few that are doing well. There are many other stocks that would do well despite uncertainty and one good way to identify them is to focus on a few forward looking themes.
2016 promises to be a challenging year for markets but the excitement of rising up to the challenge will more than make up for the uncertainty surrounding the markets. Wish you a fruitful and happy 2016.
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