Bond Managers Like Stocks

The Greenspan years of low interest rates unleashed a slew of dollars around the world. Following the dot.com bust and the wave of scandals that hit Wall Street in 2000, foreign central banks plowed that money back into the safe haven of the Treasury market.

But Webman says foreign investors are buying stocks again at levels approaching the $400 billion made in 1999, and trending higher. Gross purchases dropped off to $200 billion in 2001.

He says that given how flat valuations have been, now might be a good time to bid on growth rather than value.

"It's time to look for a three- to five-year time horizon for earnings growth potential, rather than search for bargains," says Webman. "And there are also fewer and fewer bargains right now."

While it's tough to make a case that investment grade fixed income will do very well in 2006, Jim Hopkins, fixed-income strategist for all of State Street Global Advisors, says not to panic if foreign investors buy more stocks because there will always be foreign bond buyers.

"Our rates are higher, relatively speaking, than rates in the major economies of the EU and Japan ... and I would maintain that our credit is better," Hopkins says.

Pension reform in Europe, and to some extend in the U.S., is also forcing companies to buy longer-dated, relatively safe, U.S. Treasuries in order to shore up shaky pension plans.

"The trend for 2006 would seem to be higher rates for the early part of the year and widening credit spreads," Hopkins says.

Whether the Fed gives the equity market what it wants, 2006 is a high-risk year and should be played accordingly, says Michael Cheah a portfolio manager at AIG Sun America Asset Management and the former chief representative with the Monetary Authority of Singapore.