While many are looking towards defensive stocks as a safe haven for next year, there are many more attractive opportunities which investors should look out for, according to the investment views of the fund managers of Ignis Asset Management.

For corporate bonds, “this is the best buying opportunity in several generations” according to Chris Bowie, Ignis Asset Management’s head of credit.  While default risks will be higher in 2009, Mr Bowie contends that this has already been priced into yields.  Furthermore, investors can also mitigate default risks by choosing household name companies such as supermarket chains and government-backed financial institutions, several of which are offering double-digit yields.

According to Bryan Collings, managing partner, Hexam Capital, emerging markets stocks offer compelling investment opportunities because not only are they “insanely cheap” but also due to the strong fundamentals and corporate health within emerging markets.  Investors should be aware of the likelihood that emerging markets stocks will bounce back vigorously after they bottom, potentially recouping over 40 per cent of previous losses.

In the US, economic growth looks set to fall between minus 2 and minus 4 per cent in the first three months of 2009, meaning that the earnings expectations of US companies will have to come down significantly.  However the stimulus package likely to be put in place by president-elect Obama, such as infrastructure building plans, will benefit some companies. 

Infrastructure development will therefore be an investment theme pursued by Terry Ewing and Alison Porter, co-managers of the Ignis American Growth Fund, as will companies that are well positioned to benefit from the economic downturn.  Deflationary forces, and a commensurate lowering of commodity prices will reduce the cost base of many businesses, while others will benefit from the increasing consolidation in the airline, insurance and retail sectors.

In the UK, Ralph Brook-Fox, manager, Ignis UK Focus Fund, expects the stock market to trough over the next three months, but to perform respectably once an economic recovery is underway.  In the light of increasingly attractive valuations, he believes that double-digit returns are entirely achievable by the end of 2009.

As investors flock to defensive stocks, valuations appear increasingly stretched.  Mr Brook-Fox is therefore looking to move into more cyclical stock, but will be timing this move carefully.

“Rotating into more cyclical stocks is not an immediate priority as we expect the news flow in the first quarter to be poor. There is no point getting beaten-up by the market when you know the punches are coming. The middle of that gloomy period, however, could be an opportune time to start looking at companies that will do well for the rest of the year,” he said.

Adrian Darley, Ignis Asset Management head of European equities also advocates a gradual, highly selective move towards cyclical stock in the European equities markets.  He also warns investors against taking a short-sighted view of how bad 2009 may be, which might mean them missing out when stocks rise.

Mr Darley said: “At this stage it makes sense to enter 2009 with a more balanced and less defensive portfolio than was appropriate in 2008. This means slowly increasing cyclical exposure through financial and industrial stocks, with individual stock selection vitally important. After such large stock market falls there are always excellent investment opportunities.”

According to Andrea McNee, chief investment officer, international equities, Ignis Asset Management, the main risk in the Asia-Pacific region will be corporate earnings, which are still too high and have further to fall.  There remains a question mark over consumer spending in the Asia-Pacific region, however Ms McNee notes that some strongly managed companies could profit from the economic downturn as their competition may be wiped out. 

“The key for markets in 2009 will be visibility. Once markets see clear evidence that there is an economic recovery on the way and that company earnings could rise, there is the potential for a significant rally. Calling the start of this is difficult although visibility should improve in the second half of the year. It is unlikely we have seen the bottom just yet, with the upswing in mid-December looking like a classic bear market rally. Equally, now is not the time to sell out of Asia,” said Ms McNee.