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Where best to invest? Right here at home

Bob Haber, chief investment officer for the Canadian arm of Fidelity Investments, says Canada is well-placed to provide goods and commodities to emerging markets, such as China, India and Brazil.

Fidelity Investments

SECTORS

Where best to invest? Right here at home

The way to go is energy and commodities that will supply the world's emerging markets. And don't forget financials

Dianne Maley

From his office in Boston, Bob Haber searches the globe for the best places to put his clients' money. He is chief investment officer for the Canadian arm of Fidelity Investments, the world's largest mutual fund company.

Like Mr. Haber, many RRSP holders - especially those who aren't spooked by the stock market - are looking for good opportunities in specific industry sectors or geographic regions of the world.

The best place in the world to invest this year is Canada; the best sectors are energy, materials and capital goods, he says. The reasons aren't what you might expect. Canadian stocks have been beaten down so badly they represent the buying opportunity of a generation, Mr. Haber says.

Even the Canadian dollar is a bargain relative to its U.S. counterpart, he adds: "I think it's time for people to think about buying this weakness, as hard as it is to do."

Mr. Haber does not think Canada and the United States are in for good economic times any time soon. Quite the contrary. But he does think the massive money and tax stimulus will stave off deflation.

While North America recovers, investors will seek out value and growth opportunities wherever they may be.

In his eyes, that growth is in emerging markets, countries that have huge capital surpluses and good demographics - what he calls built-in growth.

"We're talking about infrastructure. They're doing it," he says of countries such as China, India and Brazil.

But Mr. Haber isn't investing directly in those countries. Instead, he believes that Canada, even more than the United States and Europe, is well-placed to meet the needs of those countries for energy, metals and machinery. Besides, Canadian stocks are cheaper, he argues.

While the U.S. stock market is tilted more heavily toward consumer goods, financials and health care, "Canada has always had a more global stock market."

As for the Canadian dollar, Mr. Haber figures it is 10-per-cent undervalued against the greenback, measured by purchasing power parity (a way of putting currencies on a comparable footing).

Add to that the fact that U.S. policy is to deliberately lowering the value of its dollar, and it adds up to a strong argument for the Canadian currency.

Wait just a minute, you might say: Don't financials have to lead us out of the quagmire and into a new bull market, the way they have in the past six recessions?

Mr. Haber is more of a stock picker than a sector rotator - someone who switches from one sector to another as the business cycle unfolds - but he concedes that the financial sector must stabilize before markets generally can improve.

Rather than rushing out to buy now, he recommends watching markets carefully and buying on weakness, on days when prices are down. Timing the market is always difficult, he acknowledges, but investors with a long time horizon - "five, 10, 15 years" - will do well over the long term.

Sector investors, meanwhile, are watching financial stocks closely for signs that it's time to buy.

The idea is to be in the right sector at the right time, says Bill Carrigan, an independent technical analyst and head of Getting Technical Information Services in Oakville, Ont.

Not all parts of the economy are flourishing at the same time. "If you want above-average returns, you position yourself in the right sector," he says. When the energy sector is hot, for example, even the worst energy stock will outperform one in a lagging sector.

Think of the stock market not as a roller coaster, but as a Ferris wheel. As the bull market begins, the cars pause on the ground to pick up investors, then begin their ascent. The first car up is the financials, followed by telecommunications and utilities, consumer goods, industrials, health care and so on, with commodities - energy and materials - coming up the rear. When financials reach the top and go over it, commodities will still be rising.

"This is how this bear market unfolded," Mr. Carrigan says.

Financials - banks and insurance companies - peaked in the second quarter of 2007, energy in the summer of 2008. Right now, it looks like the Ferris wheel has crashed; the cars are all piled up at the bottom. In this heap, however, there is hope.

Rather than looking to emerging markets for growth, the way Mr. Haber is, a number of chastened money managers are recommending investors take shelter in defensive stocks, companies that sell things people need regardless of the economy - grocery stores, drugstores, health care.

Mr. Carrigan thinks this could backfire because as soon as the financials begin to recover, investors will bail out of the defensive sector and jump into the financials.

"Financials got us in to this bear market," he says. "They have to get us out."

Special to The Globe and Mail

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