MARKETS SPECTATOR: Follow the leader

It's good to finally see some green on the screen although you'd have to say it's far from convincing. As I said on Friday, markets were oversold on a short term basis and Friday evening finally saw US markets post a gain thanks to some positive rhetoric from President Obama and Nancy Pelosi.

Since the election, the market has headed lower on the basis that it's going to be very difficult to come to a solution to the fiscal cliff. We're now seeing a situation where the market is vulnerable to good news, which is what happened on Friday. We're by no means out of the woods but markets always overshoot on the downside, meaning it will price in the worst case scenario. When news to the contrary breaks, then the market jumps higher in relief.

So whilst Friday talks were constructive, we're going to need to see a continual flow of positive news to help alleviate some of the uncertainty. Otherwise, the only thing we can be certain of is further uncertainty and volatility.

If that does play out and markets remain under pressure, I believe strongly that they will present some excellent buying opportunities, especially for Australian equities. One must remember that what's happening in the US is very US centric. US equities have been through a two year period of outperformance and now that period is starting reverse and favour local stocks.

With more and more evidence pointing towards a recovery in China, I think we'll see the domestic market enter a period of outperformance much like overseas markets have experienced.

Close inspection

In a world with millions of different investment opportunities, one needs to find a way to somehow narrow the choice. One of the most popular and best pieces of advice any investor can heed is to watch where the big, successful money is heading.

Behind Warren Buffet, George Soros is probably the most well known investment manager. He is the president of Soros Fund Management and is best known as the man who broke the Bank of England, walking away with more than a $1 billion in profit during the 1992 UK currency crisis.

In the latest quarterly filing to the US Securities Commission, Soros disclosed what his hedge fund has been buying and selling and some of the themes he is positioning the fund for.

During the third quarter, Soros's fund was fairly active, purchasing 79 new stocks and selling 69. Some of the major positions he has accumulated are definitely worth a closer look.

One of the most interesting and thematic purchases, in my mind is that of CF Industries Holdings. It is a leading player in the manufacturing and distribution of nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide.

It currently makes up 1.85 per cent of the total portfolio but was one of the biggest purchases during the third quarter as Soros increased its holding by nearly ten times. Whilst the stocks profitability, sales track record and recent performance are strong, it is the theme behind it that make it interesting.

As the developing world grows, there's going to be more pressure on the worlds food bowls and how we produce enough food to feed everyone on the planet. There is going to be a big push towards increasing crop yields globally, and this is where the huge growth in the fertiliser business is expected to help. There is little doubt in my mind that this sector is at the beginning of a huge, long term trend.

Elsewhere, the fund increased its position in Johnson & Johnson fifteen-fold in the latest quarter, which takes it up to just less than 2 per cent of the overall portfolio. The healthcare products giant is well known for its profitability and solid dividend payment track record, yielding approximately 3.5 per cent per annum (this is considered high for a US stock).

Another stock renowned for its profitability is Google, which Soros bought $142 million worth during the third quarter. At the end of September, the technology-giant made up 1.54 per cent of the total portfolio. For such a massive company, its growth is incredible. Sales have grown at a stunning rate of 29 per cent per year in the last five years and its margins are a very impressive 22.2 per cent.

By far the funds biggest position at 5.4 per cent of the total portfolio is American International Group, the global insurance giant. It's the first time in at least two years that the fund has held stock in the company and its Soros' biggest purchase during the September quarter.