7. As we learned from the eurozone crisis, it's not just the presence or absence of fear that matters, but the degree of that fear. Fears that Spain would follow Greece's downward economic course have never vanished, but global financial markets were able to move up on other news when it didn't look as if Spain would plunge into the abyss in the next few days. When that plunge looked imminent, though, fear dominated financial markets and made it hard for any other story to break through.
It's the same now with the U.S. fiscal cliff. When fear of a near-term disaster soars, it takes down all global markets. But when it recedes to the level of a stomachache -- instead of appendicitis -- markets can rally on good news from the U.S. housing market or from U.S. retailers or from Chinese industrial companies.
I'm of the belief that Washington will work out some kind of eurozone-style solution -- part kick-the-problem-down-the-road, part detail-light action -- for the fiscal cliff that will keep fear in check for the rest of 2012 and into 2013. If that's the case, then the good news -- that the U.S. housing industry is in recovery and that rising home prices are adding to consumer confidence, and that September marked a bottom for China's economic growth rate -- stands a good chance of moving global stock prices modestly higher in 2013. (This is true even for European export-oriented stocks, despite the eurozone recession.) Remember, when you've been banging your head on the wall (be it eurozone debt crisis or the U.S. fiscal cliff) for months, nothing feels quite so good as stopping. That's a good description of the positive story for 2013.
8. The evidence keeps building that China's economic growth rate bottomed in September and is in rebound mode. It may be a modest rebound, but growth of gross domestic product seems headed up to 8%, rather than facing a drop to below 7%. For example, profit at China's industrial companies climbed 20.5% in October after a 7.8% gain in September. Before you go all goggle-eyed at the figures, some context: The improvement was just enough to push profit growth at these companies into positive territory for the first 10 months of 2012. Year to date, profits are up a not-so-huge 0.5%. That is, however, better than the 1.8% year-to-date decline for the nine months through September.
9. Don't let the continued lackluster performance of the Shanghai Stock Exchange, where the Shanghai Composite continues to bump along near the 2000 level, determine your investing stance toward Chinese equities. The Shanghai market, dominated by domestic Chinese investors, remains extraordinarily pessimistic. Stock prices are at January 2009 levels, and the index is down 9.5% in 2012. I think that's because Chinese investors and traders who have been looking for something dramatic out of Beijing to stimulate the economy have been disappointed by the government's actions to date. However, the Hong Kong stock market, which is dominated by international money, is up 15% since the start of August. Investors in Hong Kong shares are seeing the pickup in growth -- with or without splashy stimulus packages -- as a reason to buy. I think Hong Kong is a leading indicator on China's growth story and more accurately reflects the pickup in China's economy. Shanghai often takes a while to shift gears from a focus on politics to an emphasis on the real economy.
If the U.S. fiscal cliff delivers a fender bender rather than a crash that totals the car, if the eurozone crisis remains on simmer for most of 2013 (until Greece runs out of money again, shortly after the German elections in the fall, in the best-case scenario) and growth in China looks like it will hold at 8% or slightly better in 2013, then I think the biggest beneficiaries will be emerging-market stocks. The China story will convince global investors -- rightly in some cases, overly optimistically in others -- that the rising tide will lift all boats and that the absence of a pressing global crisis makes it safe to take on more risk. Investors should watch to see if the rally in Hong Kong is followed by rallies in Brazil and then Mexico.
10. The biggest gains will be in those markets that would take the biggest hit if the risk-on trade goes back to risk-off -- meaning, if investors again shy away from risk. So 2013 won't be a year for buying Turkey or the Philippines or Colombia and then forgetting about those investments. Try not to get whiplashed by the daily shifts in emotion, but do watch for a real return of fear based on an unexpected move back to boil in Greece and Spain or a fiscal cliff wreck in the United States.
2013 looks if it will be another year when real news -- if you can separate it from the emotional reaction to the noise in the news -- will drive financial markets. There is the possibility of a good year, or maybe just for a good first half, if the fear level remains set at "moderately distracting" rather than "head-for-the-hills."
Updates to Jubak's Picks
These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios:
- How long will Costco's dividend pop last?
- Why Targa is a good oil bet
- A long road to Polypore's restoration
- Wal-Mart faces a tough holiday season
- Why McDonald's will top $100 again
- Western Gas is too expensive
- China's growth picks up
Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
Click here to find Jubak's most recent articles, blog posts and stock picks.
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