The year ahead

In last week's article I reviewed my recommendations for 2006. It is therefore now the time to make some predictions for the investments world for the year ahead.

Firstly, interest rates and how they are likely to move. In the case of the European Central Bank, I see interest rates continuing to rise this year from their present position.

For sterling, rates peaked at 5% in November 2006. I think a further 0.25% rise is imminent and expect rates to then level out at around 5-5.25%.

In the US, there is very much a mixed view. Personally, I think rates are at the right level with a possibility that the next move may even be downwards.

Interest rates are a very sensitive issue and any view can change very quickly as inflationary figures, etc., are published each month.

Bonds: in view of my earlier predictions, I would still avoid euro bonds. US bonds are more attractive now and, if one holds dollars and wants fixed income, then now may not be a bad time to re-enter the dollar bond market.

Sterling bonds had a disappointing 2006 and I am not yet convinced of re-entering the market and would alternatively prefer cash for the time being.

Equities: many of the western equity markets are at, or close to, five-year highs. While I believe there is still upside for equities in 2007, I would not get greedy and instead adopt a profit-taking exercise.

I think there will be more than one significant correction of the markets downwards this year and this may act as a short-term buying opportunity.

Emerging markets: I see very little slowdown in the emerging economies of China, India and other Asian markets. Despite their obvious volatility, I would certainly be investing a proportion of my capital in these areas.

I would favour Eastern Europe to outperform again in 2007 and Asian funds that include exposure to Korea, Taiwan and Vietnam look exciting prospects.

Property: the conversion of many UK property companies into Real Estate Investment Trusts (REITs) is significant and an overwhelming amount of new money has poured into UK property funds over the last quarter.

I do not expect the same fabulous returns to come from property as we have seen over the past three years but I would suggest more is invested into property funds than equities in 2007.

Global property funds that have a high weighting in Asia are attractive also as many Asian countries have adopted REIT legislation some time ago, therefore offering huge tax incentives to investors.

Commodities: the price of oil has corrected back to less than $55 a barrel. I do not see this falling much further and regard the present price as a buying opportunity. I also think that gold will break through the $700 an ounce level before long and could even test the $800 level at some stage in 2007.

These thoughts are, of course, based on the present situation and any view can change quickly as events occur, such as the collapse of the dollar or a major terrorist attack. Good luck in 2007!

Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/ 32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 or e-mail mh@hollingsworth-int.com, www.hollingsworth.eu.com

Past performance is no guide to the future and, except where amounts are guaranteed, the price of your investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation.