Friday, December 17, 2010

11 Core Themes for US Investors in 2011

"You see, most blokes will be playing at 10. You're on 10, all the way up, all the way up...Where can you go from there? Nowhere. What we do, is if we need that extra push over the cliff...Eleven. One louder." ---Nigel Tufnel, Spinal Tap.

Our New Year gift to you: 11 brief themes that we see driving next year's markets. The three main theme groups are: Growth, Pricing Power and Business Model Changes.

Our macro backdrop has the world already moving into the Second Phase of the Bull Market. The global industrial cycle is re-accelerating again after an autumn dip, and the resulting upswing in IP should drive global equity markets higher in 2011. The recovery is poised to move from rebound to expansion as easier policy conditions support broader-based growth. The Capital Goods sector is well positioned to benefit from this bounce.

Among our Growth themes, we think in 2011 we will see the first growth market for Technology in over a decade. The main drivers of this shift will be both secular and structural including Cloud and Bandwidth Consumption. If Technology once again grows faster than nominal GDP, then watch out for an upward re-rating of that sector's valuation multiples.

In Pricing Power, we see inflation as a positive for certain retailers. Bring on Inflation for those oligopolistic sectors like supermarkets, home improvement and pet supply. In more competitive sectors like apparel & footwear it is the strength of
the brand that will determine the inflation pass-through ability.

And among the world's changing business models, we think the media and internet sectors may be severely impacted by Over-the-Top video. As internet-delivered video gains ground fast next year, those companies reliant on the value of their cable networks will likely feel a real squeeze.

[from Credit Suisse]

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