10 investment themes to watch out for in 2013

The themes depend on your risk profile.

According to BNP Paribas, the themes are derived from our main economic scenario,which forecasts a European economy bottoming out and a modest economic growth in the United States and the Emerging markets. In this scenario, which we give a probability of 70%, we see some potential for positive surprises on the economic front.  

Here are the key themes from BNP Paribas:

These themes will in the first place appeal to investors that are more defensive. They discuss ways to escape from the negative real yield environment we are in.  

Theme 1: looking for yield and return in the bond market
1 A: convertible bonds

• Carry opportunities
• Exposure to equity markets…
• …but with a lower volatility

1 B: high yield bonds

• A still balanced risk-reward ratio
• High yield firms’ default rates expected to stay at low level
• A buy-and-hold strategy via funds is favoured

1C: emerging market corporate debt in hard currency

• Healthy corporate balance sheets
• A better risk-reward ratio relative to developed corporate bonds
• A bond market with an increasing liquidity 

Theme 2: an ideal world for stocks with high, safe and growing dividends

• Dividend yields offer an interesting source of income
• Payout ratio is likely to recover
• In a low growth context, the contribution of dividends in the overall equity return is crucial

Theme 3: yield enhancing solutions in alternative UCITS funds and structured products

• Alternative UCITS funds can take advantage from both falling and rising yields.
• Structured products with a short maturity and a defensive character offer another solution to increase yield without lengthening the duration of the portfolio.  

The themes here will more appeal to investors with a neutral risk profile, who are able to switch from bonds to equity and whose equity choices are not limited to defensive stocks.  

Theme 4: the bumpy road to European recovery

• As European equity suffered most from investors’ risk aversion, it could recover most if risk aversion recedes
• Spanish, Italian and German equity markets offer the best opportunities to play the slow way to European recovery

Theme 5: value stocks: a winning style

• In late 2012, tail risks declined, paving the way for lower risk premium. This should be an advantage for risk related assets, in the first place equities;
• In this perspective, we prefer Value to Growth stocks.
• The value investment style characteristics are defined using criteria such as high book value to price ratio, high expectations regarding next year’s earnings price-to-earnings ratio and high dividend yield.  

The related themes here will appeal more to investors with a dynamic risk profile, exploring all corners of the worldwide equity market. 

Theme 6: the birth of a new capex cycle

• In their deleveraging process, companies have postponed investments and piled up cash
• Once uncertainties decrease, a part of this cash can go to investments
• The new capex-cycle will mainly benefit technology and industrial companies

Theme 7: energy efficiency

• Energy commodity prices will remain structurally at high levels;
• Companies will focus on reducing their energy spending not only for environmental reasons(within the framework of their Corporate Social Responsibility (CSR)), but also for competitive reasons (improving margins);
• Companies specialized in energy efficiency will benefit from this trend;
• Companies specialized in industrials equipment, offering solutions to increase energy efficiency, have an important growth potential in the medium term;
• Other activities such as Technology or specific materials could benefit from this trend.

Theme 8: successful discount models

• Growth remains sluggish in developed countries
• In developed economies, customers may thus buy more from the cheapest providers;
• Discount models may become more popular;
• The development of on-line sales also makes this strategy easier.

Theme 9: the growing middle class in emerging countries

• The middle class in the emerging world is expected to rise; consumer spending gets more important in the growth fundamentals of China and India;
• Consumer related sectors and those with a high sensitivity of demand versus income will benefit from this positive trend;
• Services such as health, education, financial services and tourism can be favoured.

Theme 10: Opportunities from urbanisation, among others in infrastructure and water services

• Urbanisation creates a lot of new needs
• Infrastructure spending and water services offer excellent long-term opportunities