This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.

BlackRock, Inc. (BLK) Vice Chairman Bob Doll has been putting out annual predictions for 15 years. Doll, who helps oversee about $3.2 trillion at BlackRock, the world’s biggest asset manager, just released his ten predictions for 2010 and for the next ten years. Eleven of the twelve predictions he made for 2009 were right. Below are highlights of his latest market forecasts.

In general, Doll believes US stocks will outperform cash, Treasuries and other developed economies with S&P 500 rallying another 12% this year, reaching 1250 from its January 4 open of 1116.56.

The US is on its way to recovery, but the economy will grow slower than that of a typical recovery mainly due to heavy debt load. Inflation will be a “non-issue” in the US, Europe and Japan this year even with rising prices of gold and oil. The US dollar will likely remain weak in a broad trading range with the euro and yen.

Doll also noted structural issues in the economy would continue to present problems. Chief among them are

“ongoing consumer deleveraging; a banking system facing deteriorating loan quality and an increasing yet uncertain regulatory environment; securitizations markets still largely shuttered, and a real estate market that may still be healing for several years.”

Emerging-market stocks and economies will outperform the developed world this year. His ”favorite secular story in the emerging markets remains Brazil.” (Note: Barclays Capital recently warned of a possible Bovespa (BVSP) correction in Q1 or Q2 this year based on technical chart analysis).

Furthermore, he advised investors should prepare for rising taxes following healthcare reform and protectionist government policies if the unemployment rate remains high.

Doll favors healthcare (especially managed care and healthcare services), information technology and telecommunications sectors. However, he advised underweight on financials as they are likely to continue to underperform.

Note: Doll’s predictions differ from that of Blackstone Group LP’s Byron Wien’s. Wien’s ten predictions for the new year call for the S&P 500 to finish 2010 flat, US GDP to expand about 5% and financials to outperform the market.

Doll’s predictions for 2010:

1. US economy grows above 3%, outpacing the developed world.
2. Unemployment to remain high, but with positive job growth.
3. Earnings rise significantly - 20-30% on cost & productivity advantage, particularly from a weak dollar.
4. Inflation a non-issue for the developed countries, but oil and gold will still go up.
5. Interest rate rises on Treasury curve - 10-year Treasury target: 4.5%.
6. Stock outperform cash and Treasuries - S&P 500 should rally another 12%.
7. Emerging markets outperform.
8. Health care, IT & Telecom outperform.
9. More M&As.
10. Dems stay in control of the Congress.

Doll’s predictions for the next 10 years:

1. US equities experience high single digit percentage total returns, in the range of 6% to 8% annually, after the worst decade since the 1930s.
2. Recessions occur more frequently during this decade, rather than only once a decade as occurred in the last 20 years.
3. Healthcare, IT and energy alternatives are leading growth areas for the US.
4. The US dollar continues to become less dominant as the decade progresses.
5. Interest rates move irregularly higher in the developed world.
6. Country self-interest leads to more trade and political conflicts.
7. An aging and declining population gives Europe some of Japan’s problems.
8. World growth is led by emerging market consumers.
9. Emerging markets weighting in global indices rises by 10 percentage points.
10. China’s economic and political ascent continues.

Doll’s advice to investors

•  Look for quality in all styles and caps.
•  Focus on better-positioned sectors - IT, health care and telecommunications are his favorite sectors.
•  Think about geography - emerging markets, Brazil in particular.
•  Gains will be harder to come by - ongoing volatility and selectivity will be critical.

Source: Dian Chu, Economic Forecasts & Opinions, January 7, 2010.

Dr. Prieur du Plessis
Investment Postcards from Cape Town

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