Investments and market trends for 2010

Stock markets around the world have experienced 9 months unprecedented growth. Only in the United States it is just over 60 percent. What about the year 2010? Retaining stock markets growth or correction? As usual, end of year period is the time for outlook, predictions for investments and market trends.

U.S. stocks are still well below its peak from 2007. This does not automatically mean that they can still be considered cheap. P/E ratio of S&P 500 is already 20 percent above the long-term average.

source: R. J. Schiller. Links for fundamental historical data.

But still there is a space for further growth but in slower pace. On average estimated revenue growth in 2010 is 27%. The growth supported by improving mood in global markets and ever weakening U.S. dollar, which makes U.S. goods cheaper.

Stocks

With coming economic recovery it is best to invest money in high-quality companies. Particularly those that have big cash and continue to make high profits. It is important also to think globally. Next year is expected that companies will overtake consumers in spending. Especially in Europe and Asia.

Bonds

Is also pragmatic in 2010 to invest in bonds of shorter maturity and focus mainly on quality. You will protect yourself against raising interest rates.

Reasonable option is to mix a high-yield bonds and government bonds. Investors should also not ignore the threat of inflation and thus it is appropriate to invest part of your money in bonds which are protected against inflation, known as TIPS - Treasury Inflation Protected Securities.

Treasury inflation protected securities ETF

Right now we are globally in period of low interest rates and low inflation rate. In some economies even with deflation. What should we do when inflation will start to rise again? How to invest money when inflation is inching up?

The best investments against inflation are investing in gold, index linked bonds, national savings index linked certificates, shares and property.

I will focus more on less risky inflation protected securities like TIPS (Treasury inflation protected securities) or "linkers" (inflation indexed bonds/gilts). Coupon payments reflect rising inflation and/or interest rates. TIPS are generally one of the safest investments. It should be a part of retirement or standard portfolio for better diversification.

There are already some ETFs following TIPS indexes like iShares Barclays TIPS Bond (TIP) or SPDR Barclays Capital TIPS (IPE). Recently PIMCO launched their exchange traded funds for inflation hedging PIMCO BROAD U.S. TIP (TIPZ) and PIMCO 15+ Yr. US TIPS Index Fund (LTPZ) and PIMCO 1-5 Year US TIPS Index Fund (STPZ).

These funds protect against US inflation. International exposure provides fund SPDR DB Intl Govt Infl-Protected Bond (WIP) which access inflation protected securities in 18 countries. Around 70 % of its portfolio come from foreign developed countries and 30 % from emerging markets. Regionally holdings include securities from France, UK, Canada, Japan, Brazil, Turkey or South Africa. Contrary to US TIPS this fund offers another diversification against weakening US dollar as international bonds are in 15 different currencies.