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Financial predictions for 2009

By Anthony Keane | January 05, 2009 12:01am
Read this article online at: http://news.com.au//dailytelegraph/money/story/0,26860,24871845-5015795,00.html

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New year, new tips ... experts say 2009 presents a once-in-a-lifetime opportunity for the long-term investor.
MAKING investment predictions is a risky business, especially after the world's worst financial year in decades.

In January, 2008, nobody forecast the severity of the global financial crisis and the painful end to the resources-sector boom that sent shares spiralling lower, notably blue-chip miner Rio Tinto which plunged from $157.45 to $29.91 in just six months.

And no one predicted the official interest rate would be cut 3 percentage points in three months and that it could fall back to 1960s levels. Or that government bonds - arguably the most boring of investments - would deliver the best returns for the year.

Here we are in January, 2009, and the financial predictions are flowing again.

After the stock market rout of 2008, most experts are forecasting a rebound in shares this year - as many quality companies now appear undervalued.

Research group and fund manager Lincoln Indicators says large-capitalisation companies will lead the market recovery "due to increased investor confidence and perceived safety in these stocks".

"Despite the fact that global markets are unlikely to recover to their pre-credit crunch position in the near future, we expect the market to rally in 2009 as the stock market presents a once-in-a-lifetime opportunity for the long-term investor," Lincoln chief executive Elio A'Amato said.

"While there are fundamental reasons for the share price declines of many companies . . . the issue at hand is to identify the stocks best positioned to survive through our current crisis and recover when market conditions improve," he said.

Lincoln's list of possible outperformers includes Westpac, CSL, QBE Insurance, BHP Billiton and Leighton Holdings.

Mr D'Amato said the Federal Government's stimulus plan would inject cash into the economy and underpin new infrastructure projects.

"This will have a positive impact on engineering and construction companies," he said.

"However, the first quarter of 2009 will exhibit volatility as investor confidence recedes in the face of weaker forecast earnings from companies."

PKF partner Tony Simmons said Australian shares and international shares were likely to be the best investment vehicles in 2009.

"Property may also be a good bet, provided you are not currently geared too highly. With lower interest rates and depressed property prices, it could well be a good time to get into the property market or to increase your holdings."

Prescott Securities financial adviser David Middleton said 2009 was likely to be a sluggish year for world economies, with a recovery not expected until later in the year.

"The good news is the coming year is unlikely to be as difficult as 2008, but then few years ever will be," he said.

"There is tremendous fundamental value in investment markets, and those who stay the course will be rewarded. Any potential recession seems well and truly reflected in current prices, and this is not a time to be selling unless you have to."

Maintaining liquidity and not becoming a forced seller is one of Prescott's 10 best investment ideas for 2009.

"Investment markets usually recover well before the real economy does, with share prices often rising about six months in advance," Mr Middleton said.

He said Prescott's other ideas included focusing on top-shelf industrial shares such as QBE Insurance and Toll Holdings, construction companies such as Leighton Holdings and Lend Lease, and healthcare companies such as Sonic Healthcare and Ramsay Healthcare.

Emerging markets were another area of opportunity.

"For those with a medium-term view, current valuations appear very reasonable. While investing in emerging markets is tricky and potentially expensive, there are good-quality international fund managers offering attractive investment alternatives," Mr Middleton said.

The head of Mercer's investment consulting business in Australia, Simon Eagleton, said there was cash hoarding in investment markets amid "fear of redemptions, margin calls and financing commitments".

"Less constrained investors with longer time horizons may find a number of bargains in the market," he said, though one area not expected to do well was hedge funds.

"Survival of the fittest is alive and well in the incredible shrinking hedge-fund industry," Mr Eagleton said.

"This is supported by hedge-fund guru Ray Dalio who states that the hedge fund industry comprises 10,000 planes in the air and only 100 good pilots."