It’s that time of year again – where every investment manager worth their salt is putting out a list of their top 10 investment predictions for 2017. We didn’t want to be left out. But in true Affluence style of contrarian investing, we also wanted to do it differently. So we’ve only come up with 7 of them. And we’ve concentrated our efforts on identifying contrarian or unorthodox investment predictions. Because, as Mark Twain so eloquently put it:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
A word of warning though. We are not saying all of these things will happen. Just that no-one expects them to and some of them may surprise. Even if we get half right, each of them has the ability to deliver significant investment returns if they occur.
So here, in no particular order, are our 7 contrarian investment predictions for 2017.
1. Wheat and corn prices will rise by 50%.
One of the overlooked areas for true value investors at the moment is agricultural commodities. Wheat, corn and other grains look cheap by historical standards. These things have a way of moving in cycles, a trend assisted by global weather patterns which tend to do the same. We think, with both Wheat and Corn near decade lows, its time for a rally. For our Australian investors, you can play this theme by using the Betashares Agriculture ETF, (QAG) which invests in futures of wheat, corn, soybeans and sugar.
2. Trump gone by the end of the year.
We missed perhaps the biggest surprise of 2016 – the Trump presidency. Although we did pick a surprise after visiting the US in September, it wasn’t early enough to make our 2016 predictions list. We’re not quite sure how he’ll blow himself up, but it’s a pretty good bet he’ll do some weird stuff and the establishment in Washington will move heaven and earth to get rid of him. He’s just too much of a loose cannon to hang around too long. It may be that the very people who elected him, the blue collar workers of middle America, discover he’s not delivering on what he promised and agitate for change.
3. Apartment prices rise in MLB and BNE.
Everyone’s panicking at the moment. But we’ve seen this movie before. Offshore investors still like Australia. And the money will keep coming. It can’t go to the Macau casinos anymore, but there’s still plenty of Chinese who can buy Aussie property. Add in the other Asian nations, South Africa and even New Zealanders with their economy going well and the NZD almost at parity with ours, and you’ve still got loads of demand for Aussie property. At the first sign of weakness in prices, foreign investors will continue to turn up. And prices will hold up.
4. Australia has 2 or more rate rises.
The economy’s doing better than we think. And that’s a good thing. It will, eventually, lead our Reserve Bank to conclude that rates are unreasonably low. Add in the rebirth of resources and the positive impact on capital spending, and you’ve got a recipe for higher interest rates. Just as importantly, the US is likely to be raising rates this year. And for the same reasons we had to follow suit on the way down, we’ll be forced to play catch-up on the way up.
5. Aussie stock market outperforms US.
This was on our list last year. And we were wrong, though not by much. We think it will happen this year for one reason. Resources. We continue to believe the bottom is in, and there is significant upside ahead. Plus, as we noted above, we’re backing a good year for the Aussie economy. And one or two shocks for the US. In the last few months we’ve seen a re-balancing of the Aussie stock market. Overpriced growth stocks have come back a reasonable amount. So have yield stocks. Deep value plays and cyclicals (including resources) have moved up. All of them, plus the banks, can go higher in 2017.
6. Iron Ore prices average above USD$70.
This time last year, our biggest call was that gold miners would rally 100%. It was also our best call. We made good money in 2016 from our investment in the Baker Steel Gold Miners Fund, though we erred by not having the courage to invest a bigger slice of the portfolio on it. Right now everyone. And we mean everyone. Is picking the current iron ore price of around $80 is way too high and has to fall. But if Chinese demand remains anywhere close to where it is, there will be a squeeze in 2017 as demand continues to be high and supply takes a little time to react. If this plays out, our mid-tier iron ore miners look very, very cheap at the moment.
7. Brexit proves to be good for the UK.
Brexit was a surprise, for sure (another one we missed). But the result of Brexit might be an even bigger surprise. Could it be that it might be a good thing for Britain? We’re thinking that could be the case. The Pound has already fallen substantially. That gives Britain a huge advantage when exporting, and its an export nation. It also makes British property and assets much more affordable for foreigners, which will likely drive up asset prices further in the long term, ironically one of the reasons voters chose to leave in the first place. Finally, Europe thrives on tax minimilisation. With Britain out of the EU, and having very favourable tax rates for foreigners, London could just revert to being the biggest tax haven in the world. This will be spectacularly good for Britain, and bad for European tax havens, which are mostly in places no-one really wants to go to.
So that’s it. Our 2017 list of contrarian investment predictions that just might happen. Feel free to add your own in the comments below.
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