Cover of MoneyWeek issue no 518

What you should buy this Christmas

24 December 2010 / Issue 518


  • Paul Hill: My three favourite stocks
  • Big companies should fight back on tax
  • The most interesting reads of 2010


My contrarian trade paid off

I didn’t make many predictions in my first letter of this year, but the main one was a call for a contrarian trade of the decade. Sell emerging markets and buy developed markets, I said.

So contrarian was this as an idea that even Bill Bonner – who rarely knowingly turns down a non-consensus thought – told me it was a bit nuts. Still, so far so good. The trade as a whole is working out. In sterling terms, Brazilian stocks are up 3.5% and Chinese stocks are up 7.4%. That’s nice. But it is nothing compared to what’s been going on at home. The FTSE 100 is up nearly 9%, the FTSE 250 is up 23% and Japan – the call we love and everyone else still appears to loath – is up 14%.

The same trend holds if you look at the markets in dollar terms. The FTSE BRIC 50 is up 3% (although that low figure masks great performances in India and Russia), but the US is up 11.6%, Japan 9.6%, Germany 5.1%, and the UK a less impressive but adequate 3.5%, according to the FT. Clearly, there are all sorts of currency effects working here.

But the key point, as Société Générale’s Andrew Lapthorne notes, is that investors shouldn’t necessarily listen to economists. Research regularly shows that there is no positive correlation – and there might even be a slight negative correlation – between economic growth and stockmarket returns.

The only other specific prediction I made, beyond the usual suggestions that you stay out of the buy-to-let market and hang on to your gold was about gilts.

• Read the full editor’s letter here:
My contrarian trade paid off

Follow Merryn on Twitter