Where not to invest in 2006

1. The UK.

It is hard to come up with a bullish scenario for the United Kingdom in 2006. Retail sales are at a two-decade low, and for an economy based on services this is an accident waiting to cross over into equities, bonds and real estate. Indeed, the resilience of these three main asset classes in 2005 in the face of such bad news merely confirms that the real pain has yet to come. So sell out of UK assets, and don't forget to get out of the pound sterling as well, which is also falling fast and going much lower.

2. US/European equities.

For 2005 US equities have moved sideways and avoided the crash which some bears thought inevitable. As in the UK the weakness of the real economy in the US - airlines, General Motors, Ford, etc, - is hard to square with more optimistic official growth figures. Expect to see this weakness increasingly reflected in a lackluster real estate sector which will drag down consumer spending and with it stocks. As for European equities, can anyone provide a good argument for investing in European business in the face of sluggish demand and rising interest rates?

3. US treasury bonds.

Note the bottom of a two-decade bull market for US bonds is typically marked by a sharp rise in interest rates, which is what we have seen in 2005 and may well continue into 2006. Buying bonds at these levels is financial suicide unless you think we are on the verge of another Great Depression.

4. Global real estate.

The trend is seldom your friend, and the high growth in real estate values post 2000 is tempting the last buyers into this market. Caveat emptor, sharply rising global interest rates, now needed to tackle growing consumer price inflation, will dampen real estate markets which have been driven to super-high levels by ultra-low interest rates that we now know to be on the way up.

5. Dubai off-plan property.

This market has been ruined by rampant speculation. Those who bought off-plan with a 10-20% deposit are now finding it impossible to sell on their apartments which they now have either to hand back to the developer, probably without compensation, or pay up for in full. Not a time for dabbling in this sector, wait for the property to be completed first and then look for a good deal.

6. GCC equities.

Recognizing an over-sold, over-inflated stock market ought to be easy but the retail investors that have fuelled this boom to dot-com bubble valuation levels are not easily convinced. However, all it needs is for something unexpected to happen and these markets will tumble back to earth. The risk is all on the downside as there is little more to be gained by investors, and much to loose.

Next week this column will adopt a more positive stance, and look for the opportunities to make money in 2006.