The global economy is more sluggish than first thought, government bonds offer no real return, gold is super expensive and stock markets sell off at the slightest setback.

What is an investor to do?

The answer, to borrow a phrase from Watergate, is to follow the money -- find out who has the cash and go there. This, for many investors, means top-notch corporate credit and shares in solid companies not subject to cyclical swings.

For some, it also means those emerging markets with either big surpluses or higher interest-rate expectations.

That's for the short-term. Longer-term, investors still favor a broad range of equities to outperform bonds.

Buffeted on all sides -- from weak stocks to low-yielding bonds -- many investors are looking to ride out the storm by investing in investment grade corporate debt and sometimes the underlying company's equities, if it has solid cash flow.

"Private sector assets will do better than public sector assets," said Klaus Wiener, head of research at Generali Investments in Cologne. "The balance sheets of companies are certainly better than state finances."

Given the poor state of many public finances investors are being lured by companies with higher credit ratings than their home-base countries, a number likely to grow if the United States is downgraded.

That reflects how much sovereign debt crises on both sides of the Atlantic have turned traditional categories of "risk" on their heads. Many higher-yielding emerging markets now look like better bets than developed euro zone economies. Some stock prices more secure than government bonds.

Wiener said energy-related companies and the insurance sector were areas where there was a steady cash flow.

Thomson Reuters StarMine data shows the global insurance sector with a long-term debt to equity ratio of 0.41. It compares with the much higher leveraged financial sector's ratio of 1.52.

In a similar vein, Sanjay Joshi, portfolio manager at London & Capital wealth managers, likes investment grade corporate debt and the underlying companies for shorter-term safety.

He cited as examples companies such as Johnson and Johnson, Wal-Mart and Tesco.

Wal-Mart's free cash flow to net debt ratio, for example, is 0.2, meaning it can easily cover its obligations.

Bank of New York-Mellon, meanwhile, notes "discerning" flows into emerging markets, notably Thailand, Korea and Brazil.

Such markets would previously have been low on the list for those seeking safety, given the sector's reputation for volatility. But the fiscal prudence many emerging economies have shown through a decade of high growth is now bearing fruit.


The two most common safety plays -- top-rated government bonds and cash -- also pay next to nothing to those investors seeking to protect themselves from a slowing global economy and the various crises of a remarkable year.

Historically-low government interest rates in industrialized countries -- combined in some cases with money-printing quantative easing programs -- have put cash returns at negligible levels.

Six-month or shorter paper in dollars, pounds and yen all pay less than 1 percent. Euro rates are slightly higher.

As for bonds, rising inflation and the safe-haven demand during the various crises have made most of then offer negative real yields, that is buying now would not cover cost-of-living increases.

German inflation and the Bund yield, for example, are both currently 2.4 percent, so the real yield is zero -- for the first time since at least 1957 when Datastream began tracking the numbers.

U.S. and British yields are deep into negative territory. Only Japan offers some real gain by this measure, but only because Japanese inflation is close to non-existent.

Even with this, however, demand for core-economy government bonds is likely to be resilient because of their relative safety. In other words, a bit of a loss in real terms may be acceptable for investors, at least for now.

It does set up the sector for potentially large losses in the future, however, assuming that the world economy is only in a slump and returns to growth.

The same can be said for gold, currently hitting a series of nominal record highs, and the Swiss franc which is at record highs against the dollar and euro.

Both assets have been one of the most popular safe havens of choice during the crises.

Top quality corporate debt and its underlying equities would not be as vulnerable to a turnaround.

"You want strong cash flow, you want very low debt levels -- all of that is good news," London & Capital's Joshi said.