Moneywise.co.uk users have tipped Asia as the place to invest in 2008 but fund managers and IFAs are urging caution against chasing last year's big news.
Over 50% of voters in our poll on the most promising region for investment this year believe the Asian region will bring in the best returns. A further 31% of voters are optimistic about returns in Russia and Eastern Europe, while 8% think Western Europe is the place to invest.
Only 5% of Moneywise.co.uk users have faith in the performance of UK, with a further 5% backing the South American market, while not a single voter thought investors would put their money in North America.
But what do the experts think?
Gavin Haynes, managing director of IFA Whitechurch Securities, says it isn’t surprising that many investors are confident about investment in Asia because of its strong performance last year.
But he urges caution for short-term investors: “China and India, which lead the Asian market, will continue to experience strong economic growth but equities have been overvalued and it is unlikely that investors will continue to see the same returns from these markets that they have done in recent years.”
Tony Lanning, deputy head of multi-managers at Gartmore Investment Management, is also unsure about the short-term investment potential of Asia.
He says: “There is good potential for Asia, but if the US goes into recession then I believe this will have some impact on the rest of the world. We live in a global economy now and no region is insulated.”
But James Davies, investment research manager at Chartwell Group, believes that Asian countries such as China continue to present opportunities to investors. He says: “China is not going to stop growing just because of the situation in the US.”
Russia and Eastern Europe
Hayes says Russia and Eastern Europe present strong potential for adventurous investors. He says: “Russia in particular hasn’t seen the overvaluation of equities in the same way that China has, plus it is a big economic power and is strong in resources. The political situation – especially the danger to international relations – does present a risk but it isn’t a key concern for us.”
Davis adds: “There are opportunities in Russia, but investors should avoid anything linked to the government.”
Core countries in Western Europe, such as Germany and France, have low levels of personal debt compared to other regions and haven’t experienced the housing bubble seen in the UK and US. Haynes says that although this makes them more resilient to a global economic slowdown, the risk presented from rising inflation could put some investors off.
He adds: “Inflationary pressures mean interest cuts might be difficult. If you’ve had exposure to these markets for a few years then now might be the time to cut back and make the most of the good returns.”
Despite two interest rate cuts in the past three months, the inflationary risk from rising energy and food bills could spell a sluggish domestic economy in the UK, according to Haynes.
But he says: “There have been significant corrections and valuations look pretty compelling as the market prices in a gloomy scenario. Also, lower interest rates means cash return are reduced. The market will pick up but if investors are not in it then they could miss out.”
Like Asia, South America has enjoyed a good run in the past few years. Haynes says: “This region has had a strong performance but valuations do not currently look compelling so treat with caution.”
Matt Pitcher, wealth adviser at IFA Towry Law Group, urges investors to avoid chasing last year’s big news.
He adds: “Making investments on the basis of past performances is the wrong approach to investing. Equally, you can’t always try and find the next hot thing – unless you’ve got insider knowledge or a crystal ball you can’t know what will be hot in 2008.
“If you spread your investments you can potentially capture the best asset class, as well as the second and third best.”
Despite the fallout of the credit crunch, forecasts of a recession and the housing market crash, America represents a good investment opportunity to Haynes.
He says: “The Federal Reserve has already cut rates and will probably do so again, and a climate of reduced interest rates normally supports the equities market. The fact that valuations look pretty cheap, many of its large companies are global leaders outside of the US and it is election year mean there is potential for the North American market.”
While it's impossible to know how any market will perform in the future, you should make the most of your investment by making sure you are aware of the investment outlook for the year.
To vote in our current poll and see past polls click here.
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