Here’s a summary of what the 12 global investment managers and strategists interviewed for this report recommend for 2007:

> Equities VS Fixed-Income And Cash. Most managers are overweighted in equities, partly because they don’t foresee much of a decline in interest rates and also because they expect decent but single-digit equity returns.

Fred Sturm, chief investment officer at Mackenzie Financial Corp. in Toronto, sums it up: “I expect equities to outperform fixed-income over the next couple of years, and I would tilt portfolios accordingly. A broadly balanced portfolio still looks like the most attractive alternative.”

Among the pessimists, Ross Healy, president of Toronto-based Strategic Analysis Corp. , has his clients 40%-60% in cash as they await the downturn. They still have some energy and mining stocks, as well as strong individual companies, such as Canadian Tire Corp., Shoppers Drug Mart Inc. and Biovail Pharmaceuticals Inc., which he believes is recovering from its nosedive. He doesn’t recommend any gold stocks because he hasn’t found any cheap ones. He would like some gold stocks, however, and is looking for reasonable prices. He is very nervous about banks in both Canada and the U.S., which, he says, will be affected as defaults mount in the expected recession.

Clement Gignac, chief economist and strategist at National Bank Financial Ltd. in Montreal, is recommending just 40% equities, maintaining that bonds are the safe place to be in this environment. He expects the S&P/TSX composite index to fall 15% and the Standard & Poor’s 500 composite index to be down 5%-10%. Given the effects of globalization, he foresees profit warnings everywhere. Europe is probably the best bet, he says, because it trades primarily with its own member nations. He is underweighting resources, recommending more defensive stocks, such as life insurance and utilities. He wants nothing that is affected by American consumer spending.

Nandu Narayanan, chief investment officer at Trident Investment Management LLC in New York and manager of several funds for Toronto-based CI Investments Ltd. , likes domestically oriented companies in Japan and would invest in such companies in China if it were feasible. He also likes U.S. multinationals better than domestically oriented firms. He is finding it harder to find value in Europe than in the U.S.; he doesn’t like Britain, for which he foresees a housing problem. He doesn’t like financials related to consumer lending. His best advice is to go long on currency, taking advantage of the expected decline in the U.S. dollar. He also thinks it is a good year to be in alternative investments: “It’s not a year to be long in equities or fixed-income.”



> The U.S. Lloyd Atkinson, a financial and economic consultant in Toronto, is a cheerleader for the U.S.; he recommends being heavily overweighted in U.S. equities. He has some sector calls, but says investing this year isn’t so much about which sectors you are in but, rather, selecting the right companies. He likes financial services and some biotech. He believes technology companies are worth considering, although it’s not clear anyone makes money in the sector. He also suspects that the Big Box retail story is over.

Jean-Guy Desjardins, president of Fiera YMG Capital Inc. in Montreal, says U.S. equities probably will do all right but currency movements have to be taken into consideration. If, as he expects, the Canadian dollar goes up, gains in the U.S. market will be dampened, so he suggests overweighting in Europe and Japan instead. The Canadian market will be wishy-washy, he says.

Leo de Bever, chief investment officer at Victorian Funds Management Corp. in Australia, says that even though U.S. equities are the most expensive, they may be attractive — but only if hedged back into C$.

It is worth noting that a number of money managers are less underweighted in the U.S. than they were a year or two ago, reflecting the narrowing of European and U.S. valuations. This includes John Arnold, portfolio manager at AGF International Investors Inc. in Dublin, who now has 30% in U.S. stocks, up from 20%.



> Europe. Arnold; Desjardins; Gignac; Bill Sterling, chief investment officer at Trilogy Global Advisors LLC in New York; Peter O’Reilly, global money manager for I.G. Investment Management Ltd. in Dublin; and Craig Basinger and Clancy Ethans, private client strategist in Toronto and chief investment officer in Winnipeg, respectively, at Richardson Partners Financial Ltd. , are all overweighted in Europe, but not with huge enthusiasm.

@page_break@Arnold believes the lower valuations in Europe vs the U.S. should lead to better returns, although he admits profit growth will probably be higher in the U.S.

Desjardins’ overweighting is based on currency moves rather than market performance.

Gignac’s call is based on Europe’s relative insulation from what happens in the U.S.

It is noteworthy that Narayanan says he finds it harder to find value in Europe than in Japan.



> Japan. There is less enthusiasm for Japan, although Narayanan is investing in companies that will benefit from increased domestic demand in that country. Sterling is slightly overweighted, and Desjardins, Basinger and Ethans suggest diversifying to Japan as well as Europe.

Although Arnold has a few investments in Japan, he’s not enthusiastic, given high valuations, miserable long-term earnings growth and the fact that companies are currently coming off a sharp profit recovery. He also points out that Japan has the poorest demographic picture, with the workforce expected to decline by 0.5% annually in the next few years and even faster over the long term. He’s also discouraged by Japan’s stagnant share of world trade despite huge investments in high tech and R&D.

O’Reilly prefers the rest of Asia to Japan.

De Bever calls Japan a conundrum that he would want solved before he invested heavily in the country.



> China. Like many, de Bever thinks the China story should be played by investing in companies that supply it, such as resources companies, shippers and engineering firms. He also suggests luxury-brand firms will benefit from the new Chinese millionaires’ desire to flaunt their wealth.

Atkinson suggests investing indirectly in Chinese companies listed on the New York or Hong Kong stock exchanges.

O’Reilly, who is still enthusiastic about resources, likes Chinese oil company PetroChina Co. He wouldn’t go near banking in China. He says companies in China are run first for the benefit of management and then for employees, with shareholders a distant third. It’s not a country that is friendly to equity.



> Other Emerging Markets. With his resources bias, O’Reilly likes some Brazilian companies, including Companhia Vale de Rio Doce, which recently bought Inco Ltd., and some paper companies. With virtually no risk premiums, he would stay away from Eastern Europe and Russia, particularly in banking. He says there are some opportunities in India but not a lot, and he prefers Asia.

Sturm believes there will be opportunities in markets that have lagged for geopolitical reasons, such as Taiwan and South Korea, when those political tensions ease.

Gignac think Eastern Europe will be the next big story after China as it restructures and standards of living rise. This is probably a 2008 or 2009 story, he says.

Basinger and Ethans both recommend some emerging markets exposure.

Arnold prefers the rest of Asia to Japan.



> Resources. Most money managers currently are underweighted in energy and basic materials, reflecting an expected softening in prices, but are relatively enthusiastic about gold.

O’Reilly, however, thinks there are still opportunities in many areas, including energy, base metals and paper. De Bever, too, is still positive on resources and, thus, on countries such as Canada and Australia. Healy and Narayanan believe energy will be a safe haven in the recession they expect is coming.

In the view of most analysts, the expected softness in commodities this year is a temporary thing, resulting from economic slowdown. Many expect oil prices to remain in the range of US$50-$US60 a barrel or even a bit higher; some, like Narayanan and Healy, believe the price will hit US$100 in the next three to five years. There are dissenters, though. These include Atkinson, who expects the price to stabilize around US$50, and Arnold, who sees it sinking to US$35 a barrel.

Gold is a game apart, one that benefits from downward pressure on the US$, concerns about inflationary pressure and general uncertainty. Most price forecasts are in the range of US$650-US$700 an ounce, heading higher in the longer term.

Narayanan sees gold at US$1,000 in three to five years.



> Financial Services. Many money managers and strategists like this sector generally, although some are leery of banks in both the U.S. (where the weakening housing market could result in defaults) and developing countries such as China, India and Russia, where financial systems are fragile. There’s more general enthusiasm for life insurers.



> High Technology. This sector is mentioned by many analysts because of expectations that strong capital investment by businesses around the world will continue as cash-rich companies scramble to remain competitive.

Atkinson envisions a capital-spending surge, similar to the one that occurred in anticipation of the new millennium and potential problems with computers unable to cope with the century’s date change. This latest surge will be based on the need to take advantage of increased data, voice storage and transmission speed. He has one caveat about investing in the sector: he has doubts that any of the firms will make money.

— CATHERINE HARRIS