Nikkei 225 (9.290) Topix (880) Dax (4.957) FTSE 100 (4.483) Dow Jones (8.504) S&P 500 (910) Nasdaq Comp (1.733)

No doubt that I am very sceptical about the current rebound in the global equity market, or at least the speed of it, but right now we play the “all happy” game. I continue to believe in the W shape recovery, where the global markets currently are in the first V. I acknowledge that the low of the second V won’t reach the lows we had in the markets earlier this year (or last autumn in the BRIC countries).

I also agree that the world didn’t end in a black hole. We might have seen the worst in Far East, seeing some signs of stabilisation in US but the outlook for Europe cannot cheer anybody.

The market was too short equities in February/March and the global banking sector leads to significant volatility, but the whole market rebounds so I am soon forced to enter partly (I regard it as a stop entry). Private investors have serious poured money into mutual equity funds who again are forced to buy. Several professionals I speak are still more side lined (like myself) than we suddenly are comfortable with. This gives an unusual market situation, as normally are professionals more ahead.

Are the consumers alive ?

The consumer is still alive but consumption has changed back from “nice to have” to “need to have”, and everything that requires financing is much more difficult. Consumers in countries with high saving ratios (or at least low household debts) are doing fairly well. A nice example is the German private consumption that has been almost flat the last 6 six (within index 100 – 105 for the whole period). It means that households in Germany, China, several countries in Far East and Africa are buying more or less as usual, but basic stuff and non expensive household appliance.

I have observed that business done on internet is growing and companies active on the internet are performing quite well. It’s all sectors involved from advertising, direct sales, software tools for internet based business. It would be tempting to argue that the global slowdown has moved customers to the cost effective internet shopping. Surely its right, but be careful, it could also be a behavioural trend among consumers that just takes off and is growing. I think that this is the case, and simply see internet stocks being a strategic holding for the next 10 years. This segment I suggest to manage in a separate portfolio of it’s own along with other geographical linked portfolios.

Allocation strategy

If S&P 500 has a Friday close above 925 I need to entry the stock market. On the next pages I list the expected future allocation, the currency mix of the first allocation. I primarily go for Chinese stocks (please read the China part) and global blue chips to balance each other (high risk against value stocks). I list the segments and the exchanges they trade on, but I am afraid of giving exact company names due to the heavy regulated environment the financial market is working under. The details can be mentioned in bilateral conversations.

The first allocation will be 1/3 of the final intended investment amount in Chinese stocks and ½ half the intended in global blue chips. Second round will include the internet portfolio, Far East (ex. China) and US.

The benchmark for the global blue chips is “The World Index” from MSCI.

The segments I choose:

Beverages: A well known producer of soft drinks. The company is listed on New York Stock Exchange.

Chemicals: All chemical companies are giving weak outlooks, but if the world starts to move then chemicals will be in demand. I choose a world leading German based one which is listed on Xetra in Frankfurt.

Food producers: I take 2 companies in the portfolio. Both are extremely good in sales globally and are very well positioned in countries like India to benefit from growing incomes among the lower middle class. The companies are listed on Virt-x in Switzerland and on London Stock Exchange (I take the UK listed to get the GBP risk).

Household goods: One US based company with the same sales profile as the 2 companies in the “food producer” segment, the company will also benefit from the same positive development among low income groups. The company is listed on New York Stock Exchange.

Personal goods: Basically same arguments as above, just the stuff is for more personal use. The company is listed on New York Stock Exchange.

Industrial engineering: If the world moves upwards, then it happens in Far East first and most significant. This Japanese company is positioned in all over Far East to participate in that potential development. The company is listed on Tokyo Stock Exchange.

Mobile telecommunication: If we like it or not – it’s here to stay and will grow. It’s always more interesting to participate in a growth market where China and Far East will outperform the world, so I choose a large Chinese and a Japanese one. The first company is listed in Hong Kong and the second on Tokyo Stock Exchange.

Oil: The oil price already has moved upwards on expected future demand but in a balanced simply and demand environment the oil price should be $85-90 (Hot Topics from last year). The conclusion is that we need oil in the portfolio and preferably companies with own reserves. I add 2 companies to the portfolio, the first is listed on New York Stock Exchange and the other one on London Stock Exchange.

Fast food: It works in good and bad times as long as the well known company can expand into new areas, which seems to be the case – even during extreme bad times. The company is listed on New York Stock Exchange.

The number of companies is right now 12.

Average P/E is 13.

Benchmark for the global blue chips is “The World Index” from MSCI.

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