The assets to buy now – August 2015

Asset allocation is at least as important as individual share selection. So where should you be putting your money? Here’s our monthly take on the major asset classes


Precious metals

Stick with gold

Greece's decision to ignore the results of the 5 July vote and agree a deal with its creditors seems to have calmed global markets. The likelihood that the Federal Reserve will raiserates sooner rather than later has also added downward pressure to the price of gold, which has now fallen below $1,100 for the first time in over five years. However, the deal could unravel, while concerns about China could also help the price of gold recover. In any case, it still deserves a place in your portfolio as insurance against the return of inflation.



China shatters

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The Chinese rout continues, with stocks now down by nearly a third from their mid-June peaks. The government has responded by blaming a conspiracy by short sellers. As a result it has completely banned short selling. The fallout has also hit Asian and emerging markets. Emerging market equities have also been hurt by looming interest-rate hikes in the US. A higher yield on American assets typically draws money away from risky assets. No wonder, then, that the MSCI Emerging Markets index has slid to a two-year low.

As far as developed markets are concerned, the S&P 500's high valuation means that you should focus more on Europe. In particular, we'd be interested in Italy, or even Greece (for those with an appetite for risk).



Keep avoiding high-risk bonds

Bonds yields remain low and they are also compressed. This means that even riskier countries and firms have relatively low yields. Even Italian and Portuguese bonds yield only 1.78% and 2.3% respectively, despite the fact that they still have debt problems. According to the BAML High Yield index, the average junk bond yields only 7%, miles below the historical average. We think that bonds in general are overvalued, but if you must buy bonds, we'd go for traditional safe havens, such as the US and UK.



Continue to shop around

It looks increasingly likely that the Federal Reserve will begin hiking rates in the autumn, perhaps as early as September. However, sadly for savers the Bank of England is unlikely to follow suit this year. The market is currently pricing in a first rate rise in the spring. The good news is that zero inflation means that in real terms savers are getting a better deal than they have been for several years. This means that you should continueto follow our advice and shop around for the bestdeal available.



Look abroad

London residential prices remain at sky-high levels, with the rest of the country also looking extremely expensive. Despite the reduction in inheritance tax (IHT), the crackdown on buy-to-let announced in the budget could provide the tipping point that pushes down prices. We'd therefore suggest that you look to Europe for residential property investments, where prices remain significantly down from their peaks. Markets worth considering are Ireland, Spain and Germany. Indeed, in Germany, real (inflation-adjusted) prices haven't moved in two decades, and there is a shortage of housing.



Oilplunge may not be over yet

Oil has fallen below $50 a barrel for the first time since January. It could revisit the six-year low of $45 seen back then. Weak data from China has fuelled fears of weaker demand growth, while the deal between America and Iran to end sanctions looks set to add more oil to an already oversupplied market. The US rig count, meanwhile, has ticked up, portending yet more output, while oil cartel Opec, especially Saudi Arabia, is still producing at full pelt.


Getting cheaper

Copper prices have slumped to asix-year low just above $5,200 atonne. However, looming falls in mineproduction as producers look to cutcosts imply a slowdown in supplygrowth, which should to some extentclose the gap with lacklustre demandgrowth. Moreover, shares in copperminers and producers of other metals may now have fallen enough to beworth buying.