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The assets to buy into now - January 2014

Asset allocation is at least as important as individual share selection. So where should you be putting your money? We give our monthly view on the major asset classes.

Commodities

A better year ahead?

In China, the key driver of commodities demand, there is potential for a sharp slowdown. The dollar also seems likely to strengthen as the Fed gradually reduces liquidity, putting pressure on dollar-denominated commodities prices.

Improvements in the supply of many metals are also hitting prices. Aluminium is "chronically oversupplied", says Liam Denning in The Wall Street Journal. Copper is also abundant now that recent mining investments have come to fruition. This said, mining stocks have priced in much of the bad news and may be worth buying as investors grow more upbeat on growth.

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Some agricultural commodities markets also look well supplied. A record US crop means that corn production is set to rise by 12% in the year to October 2014, while global consumption is only expected to rise by 8.9%.

In the long run, however, a shortage of arable land, population growth and changing emerging-market diets all point to higher softs prices. Play the theme with fertiliser or farm-equipment stocks.

Energy

Mind the glut

Natural gas futures, meanwhile, have jumped amid recent cold weather. Further gains look likely in the long run. Industries are switching to this clean-burning fuel, and cheap gas has encouraged some US firms who have outsourced production to bring operations back onshore. Companies that benefit from these trends are thus worth a look.

Bonds

The big squeeze

Property

Offshore opportunities

The boom is built on sand, as the pre-crisis bubble was barely allowed to deflate: prices are 4.8 times the average annual wage, compared to an average of four over the past 30 years, says Halifax. America and Germany are better value for property investors.

Precious metals

Death by tapering

But only investors with strong stomachs and an appetite for risk should dabble in silver, which mimics and magnifies gold movements. It is an industrial metal as well as a monetary one, but with the outlook for base metals uninspiring, this is unlikely to give it much of a fillip in 2014.

Equities

Further gains

Emerging markets may struggle in 2014 too. Investors should keep a close eye on politics in particular witness Turkey's turmoil in recent weeks. But many of the risks are in the price. The valuation gap between developed and emerging markets hasn't been this big since 2005. Investors should look at export-oriented economies with stable politics, such as Mexico and South Korea, and more exotic bets such as Russia.

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