Among the scads of ink being spilled in the financial press about 2011 being the "year of the stock picker," I have a different view. Equity investing will be much more about gaming the growth of the world's economies.
Most of the developing world, including China, has raised interest rates. Their aim is to reduce inflation and to rein in on the gaudy internal growth rates that have marked the asset class. As the focus in these markets slowly rotates from exports to internal consumption, the gap in returns between countries will encourage investors to look beyond the U.S.
We expect these opportunities will come from both sides of the balance sheet. Although bond yields will likely rise everywhere in 2011, owning the stronger currencies (i.e., via the DB Currency Harvest Fund, DBV, and other similar investments) can help immunize portfolios against higher rates. But in an environment characterized by higher rates of economic growth, the most potential will likely be found in equity investments.
