Best places in the world to invest in 2011
Maryrose Fison explores some golden opportunities at home and aboard – but, she warns, choose wisely
Every investor knows that playing the stock market is a gambler's game. Strike lucky and the returns can be eye-watering, get it wrong and prepare to take a sharp intake of breath as money slides down the drain.
But for those with extra cash to spare – even as little as £500 – a plethora of opportunities look promising for the year ahead. And if choosing the right fund seems akin to finding a needle in a haystack, a glance over the world's major regions is a good starting point.
Investing on home soil
The stock market took a pasting in October following the Chancellor's announcement of £81bn in spending cuts over the next four years, but some sectors emerged looking surprisingly strong.
Manufacturing is the Cinderella sector. Once widely derided, it expanded so much last year that it made the UK the seventh-largest manufacturing centre in the world, with machinery and equipment firms seeing output rise by 16.8 per cent.
Retail investors can buy into this trend while it is still young by putting surplus cash into a range of UK funds that cover the sector, such as the AXA Framlington UK Select Opportunities Fund. Axa's fund has a 26 per cent exposure to industrials and delivered a return of 28.1 per cent last year, equivalent to a £280 gain, before fees, on an investment of £1,000 over 12 months.
Bhupinder Anand, the head of London-based independent investment adviser Anand Associates, predicts further growth this year: "Now is a good time to invest in UK manufacturing as interest rates are low, inventories and stock levels are down while new order balances are at record levels. A weak pound has led to increased overseas demand which will particularly help heavy exporters."
Investment mavericks have long cited the need to be courageous with investments when others are cautious. This year the threat of defaults has hovered over Greece and Ireland and
there are few places that induce such levels of pulse quickening than the landmass across the Channel.
But where there is fear there also lies hope and Cédric de Fonclare, a fund manager who covers Europe for investment house Jupiter, says investors stand to benefit from the region's abundance of undervalued firms. "Investors are paying a low valuation price because Europe isn't fashionable, but companies in Europe offer significant potential due to their low valuation reach and strong balance sheets," he says. "More than 10 per cent of total assets are in cash for the average company in Europe so they have got very strong balance sheets."
The JP Morgan Europe Dynamic Fund produced a return of 15 per cent in 2010, equivalent to a £150 gain on a £1,000 investment, making it one of several funds which may be attractive to investors with a minimum deposit of £1,000 to spare.
Currency woes for the euro, which saw it fall against the dollar last year, spell good news for investors who will get more stock for the same amount of sterling as a few months ago. According to financial advice website Fool.co.uk, listed European firms are trading at about 10 times earnings for 2011, well below the average of 14.5 per cent for the past 30 years, meaning that there may be strength in weakness.
The land of opportunity had well-publicised economic woes last year – culminating in a pledge from the Federal Reserve to pump $600bn (£390bn) into the economy via quantitative easing before this June – making some investors think twice about investing in the region. But it's still one of the most competitive markets on earth, currently responsible for almost half of the global consumer goods market and offering investors a chance to benefit from near rock-bottom interest rates. The US stock market posted a 17.3 per cent return last year – well above the 9 per cent posted by the UK's FTSE 100. Analysts believe individual company balance sheets are in good shape, too.
A host of communications, retail and technology chains produced stellar returns last year, among them fast-food chain McDonald's, whose share price rose from a year low of $61 to an $81 high, and software firm Oracle, whose shares soared from a low of $21 to $32. The M&G American fund produced an annual return of 20.4 per cent.
Dan Morris, a global strategist at JP Morgan, predicts: "Depreciation of the dollar should help to reorient US domestic demand towards the national economy and away from imports, helping to reduce one of the larger global imbalances that initially precipitated the credit crisis."
This sector has become synonymous with high returns on exotic investments – from beach huts to elephant sanctuaries. Powered by explosive growth rates and high commodity prices, the emerging-markets boom has seen a wave of investors put their money into the sector, with many enjoying attractive returns.
Last year the Aberdeen Emerging Markets Fund produced a return of 30.4 per cent and continues to have a low minimum investment of £500, making it accessible to most investors.
With many analysts refusing to buy into speculation of an emerging market bubble, and economies in Asia and Indonesia continuing to generate strong real GDP growth, the trend for positive returns looks set to remain. Nick Price, the manager of Fidelity's Emerging Market Equities Fund, predicts the growth trajectory will continue. "The secular drivers of emerging markets remain intact – attractive demographics, competitive advantages from low labour costs, an abundance of natural resources, increasing prosperity, productivity gains and sound fiscal management."
Seize the day
The unpredictable nature of stocks since the financial crisis may yet make this one of the best times for growth this century has seen. For those financially able to take a punt, wisely chosen investments could make a difference over the next 12 months – but decisions should not be taken lightly.