The assets to buy into now

Energy: sell oil, buy gas

The oil price dipped below $100 a barrel last week for the first time in nearly a year. This looks set to continue over the long run. Oil is subject to the same demand and supply dynamics as other industrial commodities (see below). Higher supplies, greater energy efficiency and lower demand look set to take their toll. The International Energy Agency expects oil demand in advanced economies in 2017 to be lower than in 1997.

China's growth is also becoming less oil intensive. In the past decade, China burned 1-1.5 barrels of oil per $1,000 of GDP, according to financial adviser Raymond James. By 2012 that figure had slipped to under one barrel. But we remain keen on natural gas. Demand is rising as low prices encourage more industries to use it in place of other fossil fuels.

Stocks: we're sticking with Japan

Emerging markets have struggled this year, falling marginally while the global market as a whole has gained. No wonder. The economic outlook for the developed world, on which emerging countries still depend, is tepid, while the major emerging states, such as India, China and Russia, have all slowed.

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Emerging markets as a whole are "seeing downgrades to profit forecasts for 2013 at around the same rate as the beleaguered eurozone", says Economist.com's Buttonwood blog. We are impressed with some of the smaller emerging markets, such as Mexico and Indonesia, but investors should largely stick to cheap developed-market stocks. We continue to like Japan and the eurozone.

Precious metals: dabble in silver

Gold bugs took a nasty blow as the yellow metal plunged into a bear market last month. But investors should keep holding some as insurance. Another flare-up of the eurozone crisis; a renewed slide into recession; and an eventual surge in inflation due to money printing by central banks are all potential and by no means mutually exclusive triggers for another price rise.

You don't have to believe gold is going to $10,000 an ounce to want to hang on to one of the few assets that doesn't rely on a counterparty (such as a bank) for its value. Keep 5%-10% of your portfolio in gold. Those with a strong stomach may wish to dabble in silver, which tends to mirror and magnify gold movements.

Property: head to Germany

Mortgage approvals for house purchase in Britain ticked up in March, but remain only marginally above the average of 2012, notes Capital Economics. Mortgage rates have hit historic lows but demand looks lacklustre.

Apart from the drop at the height of the financial crisis, earnings (including bonuses) are growing at their slowest rate since records began in the mid-1960s. British houses are also overvalued. By contrast, in America and Germany they still look cheap.

Bonds: stay away

As we have pointed out regularly of late, pretty much all fixed-income investments look pricey now. It's hard to find a genuinely high-yield bond in the high-yield (or junk) market; investors have poured into exotic emerging-market government debt; and the 30-year bull run in bonds has rendered developed governments' debt eye-wateringly expensive, given the risks.

One danger is a surge of inflation due to central-bank money printing, while if the economy recovers strongly bonds would be vulnerable to a sharp sell-off as interest-rate hikes become increasingly likely. Stay away.

Commodities: the outlook remains grim

It's been a bad year so far for commodities, with nickel, aluminium, lead and copper all losing 6%-10%. And we think the medium-term outlook remains grim. The supercycle in raw materials that began at the turn of the century was underpinned by a jump in demand from emerging markets, notably China, and low supplies.

Supplies were low due to a drop in investment in new capacity that followed years of low prices in the 1990s. But "neither factor will hold this decade in the way they did during the last", says Liam Denning in The Wall Street Journal.

Supply is finally catching up following a rise in exploration efforts, with the copper market expected to be in surplus this year and next after years of deficits. Stocks are also plentiful in other base-metals markets, especially aluminium and iron ore.

On top of this, global demand has eased. Four years after the global downturn, "a return to normalcy remains a distant dream", says David Gaffen on Reuters.com. The global economy hasn't yet embarked on a sustainable recovery, and growth has dipped again in recent months, with Europe's recession deepening and China slowing.

Moreover, China plans to reduce the current emphasis on building infrastructure in favour of consumption, so growth will become less commodity-intensive over the next few years even if it avoids a hard landing as its credit and housing bubbles burst.

Given all this, "it appears that the commodity bears could be in the driving seat for some time to come", say Garry White and Emma Rowley in The Daily Telegraph. Credit Suisse, for instance, expects copper, still priced at over $7,000 a tonne, to drift down towards $6,000. The structural story for agricultural commodities, however, is positive, given dwindling arable land and rapid population growth. Play this theme with fertiliser and food stocks.