Morgan Stanley (NYSE:MS) put together a brief list of investment trends to watch in 2011, and it’s a solid rundown of where investor money is and should be headed.
The reality, according to Morgan Stanley (NYSE:MS), is that the world is still worried about serious macro problems. Inflation remains unstable in emerging markets, the eurozone is extremely volatile due to the sovereign debt situation, and rising inflation in the developed world may spill over and make the emerging market problem even worse.
Investing with these worries in place requires focus on the sort of companies that can withstand inflation, and still provide returns.
Morgan Stanley’s European division have some calls on where to invest in 2011.
#7 Rising inflation expectations result in equities outperforming bonds.
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Action: Look to buy stocks with prices linked to inflation, like utilities, airports, and software. Selloff positions in autos and retailers. Trade suggestions: Rio Tinto (NYSE:RIO), Xstrata, BASF, Imperial Tobacco
Source: Morgan Stanley
#6 Higher bond yields due to high growth, rather than sovereign debt problems.
Action: Commodity companies, financial companies win in this scenario. Low-growth defensive companies lose. Source: Morgan Stanley
#5 Investors in search of reliable growth as macroeconomic worries persist.
#4 Focus on stocks with high dividend yields, as yields on other assets remain low.
#3 If you’re investing by country, ignore eurozone problem areas.
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Action: If you have to focus on Europe, look to Germany, Scandinavia, and the U.K.Source: Morgan Stanley
#2 The euro is going to weaken further as U.S. growth surges.
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Action: Forget the sovereign debt crisis, the euro is going to weaken against the dollar based on better U.S. growth; look to businesses to take advantage of that.Trade Suggestions: EADS, Intercontinental Hotels (NYSE:IHG)
Source: Morgan Stanley
#1 Emerging market out performance to slim on inflation worries
Action: If you’re going to invest in EM, look to materials and energy stocks, which are protected from rising inflation. Source: Morgan Stanley
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