Precious metals
Gold has no yield, which means rising interest rates often mean lower gold prices. No wonder, then, that gold slid by another 7% to a five-year low in November as the US readies for a rate hike. Silver which usually mirrors and amplifies gold's movements fell even further. Keep 5%-10% of your portfolio in gold as insurance against disaster.
Equities
Buy Europe and Japan
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UK and US shares trod water in November, but the pan-European FTSE Eurofirst 300 index hit a three-month high. A hallmark of the bull run in developed markets since 2009 has been a triumph of liquidity over fundamentals, and in Europe stocks were anticipating further monetary easing from the European Central Bank (ECB).We prefer Europe and Japan to America; both regions boast supportive central banks and reasonable valuations.
As for emerging markets, the MSCI Emerging Markets index remains near a six-year low, hit hard by the rising US dollar and the commodities downturn. GDP growth in emerging markets has slowed for a sixth successive year. However, the worst may be over. Growth should improve as China stabilises, commodities may also have bottomed, and valuations look reasonable emerging markets trade at the biggest discount to developed markets in a decade.
Bonds
Still too expensive
Developed-market bond yields have slipped again in the past few weeks due to fear of deflation in the major economies. The asset class remains very expensive after a 30-year bull run and thusvulnerable to a reversal. Any sign of unexpected inflation would scare investors, while a sell-off could be exacerbated by the dearth of liquidity in the market, as we noted last week. That caveat applies also to corporate bonds, where yield-starved investors have piled in since the financial crisis.
Property
Battered by headwinds
Momentum is draining from the UK residential market. Annual house-price growth slowed to 3.7% in November, notes Nationwide, down from more than 10% last year. Higher stamp duty on second homes and buy-to-let investors are new headwinds, added to the fact that the market remains overvalued compared to history.
Cash
Keep some on hand for bargains
The US Federal Reserve might raise interest rates next week, for the first time in almost a decade, but British savers will have to wait until 2017, hints Bank of England boss Mark Carney. That's bad for savers. But hold cash as "dry powder" to exploit future buying opportunities.
Oil
Lower for even longer
Oil prices slid again in November and are near three-month lows at around $45 a barrel. The fundamentals suggest the "lower for longer" trend will endure. The oil glut shows no sign of shrinking, with developed-world stockpiles at a record high and Saudi Arabia not expected to cut production at today's meeting in Vienna. Next year more Iranian oil could add to supply, while global demand growth has been lacklustre. A sustained rebound looks quite a way off.
Soft commodities
Good bet for the long term
The trade-weighted dollar's rebound to a 12-year high has hit both industrial commodities, notably copper and their agricultural counterparts. Softs are also suffering from rising supply we've seen three years in a row of strong harvests in grain markets, for instance. But over the very long run, softs are likely to rise, given growing populations and limited arable land. Play the theme with farm equipment or fertiliser stocks.
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