Emerging markets continue to lead. Between 1960 and 2000, emerging markets' share of global GDP cyclically fluctuated between 18 percent and 22 percent, according to the World Bank. In the past decade, emerging economies have broken out and now account for approximately one-third of global GDP. Many of these countries emerged from the recession much quicker than their developed counterparts. They're expected to continue to outpace developed nations like the United States, which will be held back by its large amounts of debt going forward. "It certainly looks like emerging markets—because of their low levels of household debt [and] their low levels of government debt—are in a fundamental position to sustain the type of growth that we've seen historically," Gallagher says.
That endorsement doesn't come without risks. In a recent note to clients, Gallagher wrote, "Emerging markets truly appear to finally be emerging. My only concern is the unanimity of investor opinion on the issue." Generally, he says, a consensus in the investment world about a given asset class doesn't bode well for its future success. He believes that a few issues, primarily the potential of a trade war breaking out between, say, the United States and China over currency manipulation, could derail growth there in the future. There are also concerns that these markets may be a bit overheated and that inflation could pick up, which would in turn force governments to raise interest rates. In that case, stocks would take a hit. But Gallagher believes rising interest rates would only slow growth in emerging markets momentarily.
Gold loses its luster. The biggest investing story in 2010 may have been the performance of precious metals like gold and silver, which investors flock to in times of uncertainty. Year-to-date, the world's largest gold ETF, SPDR Gold Shares (GLD), has returned 27 percent, while the largest ETF tracking silver, iShares Silver Trust (SLV), has gained a whopping 74 percent. Debt troubles in Europe and bond buyback programs like the Fed's quantitative easing plan made investors nervous, and they took refuge in the shiny metals.
But, Hviid says, there's no actual value to metals like gold and silver, and there are no cash flows by which to measure the prospects for future growth. Therefore, these metals trade on investor psychology—primarily fear. "Gold is a fear trade," Hviid says. "If fear is receding, the appetite for gold will naturally subside." Another flare-up in Europe or a slowdown in growth in the United States could spur another gold rush, but if the economies improve, the rally could slow. Hviid suggests investors take a more broad-based approach and get exposure to different types of commodities, like industrial metals, crops, and oil that will benefit from a pickup in global consumption. Zemsky believes oil could reach $100 a barrel next year.