Monday, January 01, 2007

Preview of 2007

2006 is a good year for investors. If I said this in Dec 2005, many people would not have believed it. 2006 went ahead with full charge in spite of inflation, Iraq, Iran, and Oil price increase. Total assets in the mutual-fund industry crossed the $10 trillion-mark for the first time in October, according to ICI (Investment company Institute).

Many fund managers waited for pull back in October to jump in the rally that was started in July. That pull back didn’t happen, so many fund managers’ performance is lagging behind S&P 500 index in 2006. Fewer than 20% of U.S. fund managers running diversified stock funds that try to beat the market managed to top the Standard & Poor's-500 this year, according to data-tracker Lipper.

Driven by a splurge of deal-making, a halt in the Federal Reserve's campaign of raising interest rates and continued profit growth, the Dow Jones Industrial Average completed its best year since 2003, gaining 16%. Lot of investors are now itching to get in the party, that would drive the stock market higher in 2007.

For 2007, outlook for stock market looks brighter. Employment numbers remain strong, that should compensate for housing slowdown. Third year of presidential term is always a good year for the stocks. Government tends to take lot of economy-boosting decisions in that year. (Are they not supposed to do that all the time?!) So, 2007 should be a good year. Bumper crop of bonuses on Wall Street could also find their way into stocks.

Emerging markets keep marching higher. You may not get the same spectacular results we had in the past few years, but it should still return decent numbers in 2007. All the fund managers focus on BRIC (Brazil, Russia, India and China). Out of these four countries, India and China still has some room for stocks to climb. However, many analysts believe that India and China are in bubble stage. Investing in Russia is not for faint-hearted.

If you are investing in India, enjoy your gains. Market will go higher before retreat. Always have your stop losses in place. Many Indian investors know that they are in somewhat bubble stage in both stock market and real estate. Their hope is that nothing will happen for next few years. Only problem is that bad things happen in stock market only when you don’t expect it. The bottom line is that always monitor your investments especially if you are in India and China.

Gold will rise further from current levels. Silver will also see some healthy market. Zinc mining companies should see lot of buyout offers from established players.

US$ will go down little. That should also help push Gold price up higher.

Large cap stocks already attracted lot of optimists in 2006. They should see more gains in 2007.

REITs performed very well in 2006, that momentum should continue into 2007. If Fed cuts rates in May 2007, that will drive up the momentum further.

Lot of deals happened in 2006. Lot more deals are expected in 2007. That should give tremendous boost to the market.

Good Luck to all the readers. I wish you very Happy New Year!

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