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Another year of macro dominance has
kept market correlations high, leaving
many stocks mispriced
We believe the macro environment will
stabilise next year and stockpicking will
become more important again
We identify five themes, and the sectors
and stocks that should benefit
Macro factors have dominated equity markets since mid-
2007. But the economic environment is likely to be
somewhat more stable in 2011. And the risk-on/risk-off
high-correlation environment of the past few quarters means
that many stocks and sectors have moved together that
should not have. This suggests that a more bottom-up
stockpicking approach can be successful in 2011, as
investors look for mispriced stocks and themes that were
ignored in the macro hiatus.
In conjunction with HSBC’s analysts in Europe and Asia,
we have developed what we see as the themes that will drive
markets in 2011. In this report, our analysts preview the
outlook for their sectors in 2011, describe their highest
conviction ideas, and identify the stocks they think will be
most affected by our strategy themes.
Our five themes are:
1 Pricing anomalies. The high correlation of stock
markets throws up some badly mispriced securities
2 Effects of low rates. Interest rates in the developed
world will stay ultra-low for a long time. This boosts the
income attraction of some stocks and reduces
companies’ borrowing costs
3 Cash-rich companies. Companies are sitting on piles of
cash. Some will spend it on M&A or capex; others will
return it to shareholders
4 Winners from Chinese growth. The China story still
has a way to go. We identify some less obvious winners
5 ‘Techtonic’ shifts. Technological developments of the
past decade are coming to fruition in areas as diverse as
smartphones, electric cars and solar energy
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