|
|
 |
|
| Feature |
5 Hidden Investment Opportunities for 2008
Jan Alexander
01/01/2008
|
Sell Big Gainers Before Taxes
Rise
What: Long-held equity, real estate, art and other assets that might have jumped manyfold in value over the price you
paid.
Why: You might
pay higher capital gains taxes after 2008.
How: Consider
selling some of your highly appreciated assets this year to reap maximum cash.
The 15 percent tax rate on
long-term capital gains, the lowest rate in the country’s history, is a
temporary gift from the 2003 Jobs and Growth Tax Relief Reconciliation Act
(extended by President Bush’s Tax Increase Prevention and Reconciliation Act of
2005). It will expire in 2010 unless Congress votes to renew it. If you are
betting on renewal, you might also consider buying a nice bridge that leads to
Brooklyn. In fact, Congress has the ability to raise the rate before 2010.
 The economy and tax fairness will be major issues in this
year’s election. In the next administration, no matter who is elected and no
matter which party controls Congress, the capital gains tax is likely to rise,
at least back to 20 percent. If you have entertained thoughts of selling certain
assets that have seen significant gains, you are likely to come out ahead if you
sell them in 2008. The gains in 2009 or 2010 might not be sizable enough to
offset a tax increase.
"We’re getting a more restrictive environment, and we have all
these other factors around trade policy and potential market volatility," explains Christopher Wolfe, chief investment officer for the Private Banking and
Investment Group at Merrill Lynch in New York. "So it’s hard to see how the
investment will appreciate by 10, 20, 30 percent. The odds are against it
anyway. Taxes are probably not going to be your prime consideration in deciding
whether to sell, but put it this way: Ignore at your peril the penalty you might
pay if capital gains rates jump around as they have for much of the 50 years
that they have been in existence. They have been as high as 90 percent, as low
as 15 percent, up to 28 percent, then 35 percent, then back down to 15 percent."
Look for Deals in Emerging Markets
3. What: Undervalued
companies based in emerging markets.
Why: The BRIC
countries and many other developing economies have grown rapidly but are likely to see a slowdown this year, especially if the
United States has a recession. Furthermore, as an asset class, emerging markets look
overheated.
How: Invest
through American depository receipts, foreign stock markets or funds specializing in niche sectors.
Ask almost any global investors
and they will tell you that emerg-ing markets are overheated, especially China,
where the Shanghai stock
market alone gained 110 percent in the first nine
months of 2007. Merrill Lynch’s Erdman, for one, is reducing his clients’
weighting in China and India, albeit only for the short term. "We have used that
sector as an alpha generator, at times moving 5 to 7 percent of an international
weighting there," he says. "But now we’re directing the money to high-quality
European companies in restructuring areas, and some to Brazil and a couple of
other emerging markets. We want to be in China for the next 10 years, but we’re
taking chips off the table now because we think that there is so much euphoria
that there is a lot more risk than a year ago." A recession in the U.S. would
likely hurt the emerging markets, which still depend heavily on exports in spite
of their gradual "decoupling," as it is known on Wall Street, from the U.S.
economy.
Hugh Simon, the CEO of Hamon Investment Group, a firm based in
Hong Kong that specializes in Asian investments, is shunning stocks in the
Chinese manufacturing sector. But when you are on the ground there, he says, you
see a number of sectors with plenty of room to grow in tandem with a rise in
domestic consumption and a major overhaul of the country’s infrastructure.
Convincing Chinese households to spend some of the $2.2 trillion they have
amassed in savings is problematic, but Simon is betting on growth in China’s own
consumer-product companies, with brands that are becoming popular in the
domestic market.
|
|
|
|
|
|
|
