Tips for modern contrarians

All our one-time favourite contrarian bets are getting rather too popular. Japan, as SMBC Nikko's Jonathan Allum puts it, is "a minority interest that has gone mainstream". Everyone loves income-producing defensives. US property is considered a buy by almost everyone. Even gold, while not exactly as popular as it was a few months ago, is no longer seen as a niche investment for crazies.

So where's the modern contrarian to go to get away from cosy consensus investing? Russia is one option we started being keen on it a few months ago when it appeared to be universally hated. It is getting more popular, but on a market price-to-earnings (p/e) ratio of less than seven, I think we can still call it a contrarian play. For further clues we can turn to the latest Merrill Lynch Fund Manager Survey, which, says Allum, "gives a number of examples of investments that no self-respecting investors would dare to admit having (and thus which every serious investor should at least consider)".

With this in mind you could invest in bonds (which almost everyone claims to hate). But I wouldn't sometimes the consensus has a point. You could look at commodities fund managers are also very underweight these. I'm tempted by this the current destocking cycle has to end at some point and many commodities and commodity stocks are cheap. You might also keep an eye on the Chinese market. A mere six months ago, a net 67% of survey respondents expected an acceleration of Chinese growth. Now they have (finally!) come to their senses, and a net 65% expect slowing growth. It hasn't happened yet, but at some point they'll grasp the extent of China's problems, and there will be a whopping great sell-off, the market will get properly cheap and we will all be able to buy in at the right price. I'm looking forward to that.

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You might think about selling a few dollars a net 83% of managers expect the dollar to appreciate from here. That kind of one-sided weighting has to be a contrarian's dream. We've been keen on the dollar for while, and still get the arguments for a strong dollar (safe haven, fiscal tightening, tapering, least dirty shirt in the currency laundry basket, etc), but a consensus such as this is just begging to be bet against.

Finally, not so contrarian but interesting nonetheless: you could go bullish on Britain, as suggested by David Stevenson. He thinks I disagree with him entirely on this, but I don't really. I am open to the idea that Britain could be about to have a good-looking year or two. I'm not even against investing in the UK stockmarket. It isn't particularly expensive on a p/e basis and is around its historical average in terms of the Cape, our favourite measure. But I can't yet accept that Britain's long-term future is in any way assured. Matthew Lynn does a good job of summing up the reasons to worry.