In­vestors plac­ing bets on 2011 win­ners

The Pak Banker - - International3 -

NEW YORK: In­vestors will be tak­ing ad­van­tage next week of the some of the last re­main­ing trad­ing days of the year to place their bets on what will be the win­ners of 2011.

One of the defin­ing char­ac­ter­is­tics of 2010 has been the strong cor­re­la­tion across as­set classes. Move­ments in the dol­lar or in bonds had just as much im­pact on eq­ui­ties as more fun­da­men­tal fac­tors, such as cor­po­rate out­looks.

The tight re­la­tion­ships came as in­vestors fo­cused on the same fac­tors-fur­ther stim­u­lus from the Fed­eral Re­serve, sov­er­eign debt wor­ries in the euro zone and the strength of the eco­nomic re­cov­ery.

The macro fo­cus has meant in­vestors made the same trades rather than dif­fer­en­ti­at­ing in­di­vid­ual sec­tors and in­dus­tries.

"No mat­ter how much work you put in try­ing to pick win­ners and losers, the profit avail­able from do­ing so was way be­low nor­mal," said Char­lie Blood, di­rec­tor of fi­nan­cial mar­kets strat­egy at Brown Broth­ers Har­ri­man in New York.

An­a­lysts ex­pect that cor­re­la­tion to ease in the com­ing year, al­low­ing sec­tors to see more di­ver­gence and af­ford­ing in­vestors more chances to out­per­form the mar­ket.

" It's struc­turally just un­sus­tain­able to have that kind of (cor­re­la­tion) be­cause it doesn't al­low for di­ver­si­fi­ca­tion," said Ni­cholas Co­las, chief mar­ket strate­gist at the Con­vergEx Group in New York.

"I do think it has to re­verse-it's just not a healthy part of the cap­i­tal mar­ket," he said.

Even as in­vestors re­po­si­tion them­selves, the broad mar­ket is likely to drift un­til year-end with next week short­ened by the Christ­mas hol­i­day.

In­deed, Wall Street's fear gauge, the CBOE Volatil­ity in­dex, or VIX (.VIX), on Fri­day fell to its low­est level since April.

In­vestors will also take in a round of eco­nomic data next week, in­clud­ing the fi­nal read­ing of gross do­mes­tic prod­uct for the third quar­ter, new and ex­ist­ing home sales for Novem­ber and De­cem­ber con­sumer sen­ti­ment.

Stocks that have been the best per­form­ers for the year are al­ready see­ing a pull­back, sug­gest­ing in­vestors are happy to lock in prof­its as they search for fresh op­por­tu­ni­ties.

Sales­force.com (CRM.N), one of the best-per­form­ing stocks on the S&P 500 this year, has backed off this week, slid­ing 8.1 per­cent. Even so, the stock is up 85 per­cent for the year.

Mid-cap Net­flix (NFLX.O), an­other in­vestor fa­vorite this year, has shed 12.6 per­cent since the be­gin­ning of De­cem­ber, though that still leaves the stock up some 226 per­cent this year.

Sim­i­larly, small-and mid­cap in­dexes have out­paced blue chips with the S&P Mid­Cap 400 in­dex (.MID) and S&P Small­Cap 600 in­dex (.SML) both up more than 24 per­cent in the year to date com­pared to the S&P 500's (.SPX) 11.6 per­cent gain.

But with val­u­a­tions on smaller com­pa­nies be­com­ing stretched, in­vestors are likely to shift into blue-chip names next year, said Bob Gor­man, chief port­fo­lio strate­gist at TD Wealth Man­age­ment in Toronto. -Reuters

SYD­NEY: Ryan Har­ris cel­e­brates the wicket of Steven Finn to sew up the third Test. -Ap

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