Are there any Bright Spots left for Investors?

New York, 12 Aug 2008. 2006 and 2007 were particularly good years for most investors, with emerging markets powering ahead the world over, and developed nations bolstered by rising

New York, 12 Aug 2008. 2006 and 2007 were particularly good years for most investors, with emerging markets powering ahead the world over, and developed nations bolstered by rising stock and property markets. If 2006 and 2007 were particularly good, 2008 has been particularly bad.

Amid the sea of seemingly never ending bad news, are there any bright spots left for investors? The cynics and the pessimists have a one-word answer for that – no. With the drop off in commodity prices, there seems to be no asset class or region that is a safe bet right now.

Indeed the MSCI World Equities Index was down 8.5% for the year by end June, and has been more or less trending sideways since then. Looking at a range of asset class performance figures for 2008, most are down for the year, with several down double digits.

The more seasoned investor however, will be looking out for pockets of performance with a portfolio that is most likely geared for safety right now. Longer term, the most interesting question is around where tomorrow’s major growth stories will come from.

Oil and commodities have clearly been a profitable play this year, but opinion is divided as to whether a bubble has burst or prices will continue their long term growth trend.

Most global equity regions and classes have been weak or deteriorating this year, with the exception of energy and materials – but they are subject to the same uncertainty over oil and commodity prices.

India, China and other recent Emerging Market darlings like Vietnam have been bathed in red ink this year but for many this represents a buying opportunity. Although economic growth is slowing in these markets, the development of both their export-led sectors and in particular their domestic economies mean that they will continue to represent good long term growth potential. Oil rich middle east countries like Saudi Arabia and the United Arab Emirates may be even more favourable, benefiting from both high oil prices and rising domestic demand.

Hedge funds and private equity have also been net gainers from the current market challenges. Both hedge funds and private equity are much less regulated than traditional funds, and hedge funds can play both long and short, allowing well-managed funds to profit from uncertainty and from bear runs on markets. Funds in this class have managed to produce returns around the 10 per cent mark this year.

Finally the more adventurous investor can take solace in wine and whisky. We are not talking about drinking them when things go wrong, but buying valuable vintages, which have been appreciating at dramatic rates in recent years. Having said that, the great advantage of these asset classes is that you can drink them if things go belly up – try doing that with a tanking futures contract.

These asset classes are part of a wider set of investments that appeal to the growing worldwide ranks of the super-rich. In recent years the markets for luxury property, aircraft, yachts and even premier league football teams have been on a tear, and they have been – as yet – immune to the global slowdown.

The question for the rest of us is – how can we join the fun.

Ron Portobello, EconomyWatch.com