Good morning,

Markets are called to open flat this morning. This is what's happening today:

  • The Nikkei is having a good day today trading 2.2% up. This is because the yen fell, set for the longest weekly losing streak in more than four decades, after consumer prices declined, supporting policy makers devaluing the currency;
  • Samsung Electronics Co. fell to the lowest in almost two months in Seoul trading after saying the strengthening won may cut operating profit by at least 3 trillion won ($2.8 billion) this year;
  • Netflix Inc. shares surged 34% in extended trading after the world’s largest online-video service reported fourth-quarter earnings of 13 cents a share compared with the average analyst expectation for a loss of 13 cents

Companies expected to report results in the US today are: Halliburton, Proctor & Gamble

High yield – Credit Bubble Seen in Davos as Goldman’s Cohn Warns of Repricing

I'd like to share with you an interesting comment from an article in bloomberg this morning on high yield – 'Portugal, which is rated junk, sold 2.5 billion euros of five-year bonds through banks, the first offering of that maturity in almost two years. Spain, rated one level above junk by Moody’s Investors Service and S&P, saw demand for its Jan. 22 bond sale that was unmatched in the country’s history, Economy Minister Luis de Guindos said in Brussels that day. Buyers of fixed-income products must be told that “just because it is a bond doesn’t mean that it trades at par,” Cohn said yesterday. “At some point, interest rates will go higher again, and all of the money that has piled into fixed income over the past three years, some of it will come out,” Cohn said. “We will clearly be there to facilitate, we will clearly be there to provide balance sheet and liquidity to our clients, but ultimately, we can’t be the buyer of last resort.”'

My comments on how you should be invested in equities in 2013

The following is an email I sent to a client explaining to him how I believe his portfolio should be invested in order to gain alpha in 2013. There are alot of interesting names. Some I have already spoken about and others that I will speak about in the coming weeks. Not everyone's risk-reward is the same. Make sure that when you buy stocks the constituents in your portfolio have the potential of reaching your personal goals and make sure you know what the probabilities of reaching those goals are.

Before I start talking about individual stocks, I’ll give you a quick macro-economic view which will ties in to the names you will see below.

I’m betting on China and I’m playing the China story with commodity stocks and ETFS.

We have the Dollar weakening, we have China’s economy expanding, we have the Eurozone getting out of recession at the end of 2013 and we have the US which although is not boasting about its growth, it isn’t doing badly.

Commodities are negatively correlated with the dollar. The lower the dollar goes, the higher commodity prices go. The better china does, the better commodities do. It’s a win-win situation. Companies which make sense holding at this point in time are Caterpillar, Bunge, Ingredion and Monsanto.

Moving on to oil and gas. Barclays are bullish on the sector and they are right to be. As the economy expands the demand for oil increases and the amount of money to be spent on exploration and production in the US alone is going to increase by a substantial amount in 2013. Again a commodity play. Having said this I amn’t a fan of oil stocks. The fact that their performance is binary on an event taking place is not something I’m keen on. However, there is another way to play the market by getting into oil services – the likes of Halliburton and Schlumberger should perform great this year.

Exposure to gold through SPDR Gold (USD) or Gold Bullion Securities (EUR) and to a china etf (SPDR China, iShares MSCI China Index Fund etc.) are a must in a portfolio. I have spoke about the two many times in previous blogs.

But it doesn’t stop here. The stocks mentioned above should get you nicely through 2013. But there is more. The market is thirsty for risk and you need to add some cyclicals.

Names I like are Adidas, Foot Locker and BMW (if you like the China story you must like BMW). I’d get exposure to the DAX and also to the CAC. The DAX was up 30% last year and is up another 1.27% so far this year. Despite the strength in the euro, the DAX should still do well because most of the stocks in the DAX are multinationals. BUT, analysts are now betting on the CAC because there is a big discrepancy in valuation and the CAC is now looking like the better option for 2013.

Regarding non cyclicals I like Essilor and Unilever.

If you want exposure to industrials I’d opt for the Lyxor ETF industrials goods and services (IND) and if you want exposure to banks I’d go for Lyxor ETF Banks (BNK). In the US I’d stay away from banks (because I still think the housing market has still far to go despite the positive trends we are seeing at the moment). If I want exposure to finance I’d be buying Goldman Sachs or JP Morgan. Investment banking stocks do well when investors want to participate in the market. Money is going in and there is still a lot which needs to get into the markets. After going through the results of these two companies, it looks like that they have good things going and will also do well in 2013.

One last point. I still believe in tech. Google, Apple and Oracle are my top picks in the sector. Yes I still think Apple has room to grow – check out my opinion by clicking on this link –

Analysts are saying that money will shift out of high yield and into equities. We are already seeing it happen. It is good to be exposed to equities in 2013 – lower valuations, greater upside potential and dividends which can also be higher than the yield on junk bonds!

I didn’t go into detail on each stock at this stage. I thought it would be more beneficial to walk you through my thought process and which stocks I am picking in which industry. If you want to know more about a particular name, I can give you my reasons why I’d buy the stock and also forward some analysts reports to back up my view.

For more information on the stocks mentioned above, or other stocks and bonds, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli