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CNBC ON DIGG

Diversifying Away from a U.S. Recession

By: CNBC.com | 07 Jan 2008 | 11:59 AM ET

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With more voices adding every day to the chorus predicting the world's biggest economy will go into a recession, diversifying away from U.S. stocks is a healthy strategy, analysts told CNBC on Monday.

Traditional defensive sectors are consumer staples and food. But apart from those, commodities, especially gold, are increasingly believed to be a safe bet.

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For The Investor:

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The technology sector, which has been used as a refuge until not long ago, should be carefully assessed and stocks linked to the financial sector or consumers should be avoided, Alexis Dawance fund manager at Global-Cap SA, told "Worldwide Exchange."

But technology companies in the restructuring or outsourcing business are likely to fare well, added Dawance, who also said he was "pretty negative" on the U.S. economy.

His gloom is shared by other economists.

Change in Portfolio

"From what I have seen so far, I would still tend to be very cautious on U.S. equities," Professor David Costa, Dean at the Robert Kennedy College, told "Power Lunch Europe."

"I think this is an excellent time to change your portfolio in view of being a bit more defensive," Costa added.

A more defensive strategy would focus on commodities, agricultural staples such as wheat but also on gold, which is positively influenced by the current situation when "central banks are cutting rates and are probably buying gold," he said.

Gold prices, which reached a record high of $869.05 an ounce last week, surged 32 percent in 2007 and are around 4.5 percent up this year.

Gold Rush

The fall in the U.S. dollar, concerns about inflation and fears that the effects of the subprime crisis will spread to the overall world economy have all contributed to this rise.

But supply and demand factors also play an important role, Ross Norman, from TheBullionDesk.com, told "Power Lunch Europe."

Global mine production is falling, with output in South Africa, the world's largest gold producer, at its lowest since the thirties, Australia and Canada also declining, and only China rising, Norman said.

"On the supply side we are seeing peak gold, just as we're talking about peak oil production," he said. "The supply-demand fundamentals are very attractive, and this is driving institutional investors in."

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