Several strategists who produced big returns during the downturn, including George Soros and John Paulson, are seeing tough times ahead for the economy — but opportunities in the market right now.
According to The Wall Street Journal, Soros is bullish on stocks in Brazil, China, and India. Corporate profits will likely not be as high as they were during the “super bubble”, but China will partially replace the struggling U.S. consumer, he says. “China is the major beneficiary of the collapse of the financial system,” Soros says. “For them it was an external shock. Because China is in a position to stimulate its economy, it will be a motor for the global economy.”
Soros, whose hedge fund gained 32% in 2007, 8% last year, and is up 17% this year, says we are in a trading market, and investors should take profits when shares jump, the Journal reports.
Paulson, meanwhile, is betting on some of the types of assets he successfully bet against over the past few years, believing that prices were factoring in numerous defaults that were unlikely to occur, the Journal reports. “We completely shifted our focus on the credit markets from one which had a short bias starting in 2006 to one that is aggressively long,” said Paulson, who in recent months has bought top-rated residential mortgage-backed bonds, commercial mortgage-backed securities, distressed debt, leveraged loans, and even some big bank and financial stocks like Capital One Financial Corp. and J.P. Morgan Chase & Co., the Journal says. He’s also high on commercial real estate broker CB Richard Ellis Group Inc. and Petro-Canada.
Paulson also sees slower growth and major inflation in the future, however, and has about 10% of his holdings in gold, the Journal says.
Another hedge fund strategist who saw the housing crisis coming, Alan Fournier, is high on health care stocks like WellPoint Inc., saying their earnings won’t be as impacted by the Obama Administration’s health care plans as many think. He’s also high on coal and utility stocks. Fournier sees trouble down the line for the economy, however: “It’s only a matter of time before stimulus effects fade, the economy rolls over, deficits hurt bond yields and the dollar gets hurt.”