Earnings growth from US equities will remain strong enough for good returns as that economy heads for a soft landing, according to Deutsche global chief investment officer for active equities Karl Sternberg.
Deutsche takes the bull between the horns
Earnings growth from US equities will remain strong enough for good returns as that economy heads for a soft landing, according to Deutsche global chief investment officer for active equities Karl Sternberg.
As such, Sternberg says Deutsche has revised its overall view and moved from an overweight position in bonds and cash to one now heavy in equities, particularly those in the US.
“Most people are bearish on equities so we feel this may be a brave move and even though earnings growth won’t be dramatic, we feel there is enough to go forward in the next year,” Sternberg says.
“For us, earnings is the main issue and though downgrades are occurring there is nothing highly unusual going on as we feel the bubble has burst in the US, if it really existed at all.”
The main focus during the past year had been on technology, media and telecommunications which Sternberg says has diverted attention away from other sectors which have also performed well.
However he says the new economy sector will still remain one of the chief drivers as the US leads the world in terms of technology investment.
“There is no sign yet that Asia or Europe are catching up in this area in the short term, but may do so over the coming decade,” Sternberg says.
“The technology, media and telecommunications sector is still sustainable in the mid term and valuations are in line with the rest of the world.”
While Europe lags behind the US in technology, Sternberg says it can also make use of the growth in that sector to improve its current standing.
“Europe can afford more expenditure and can get up to speed off the back of US development which will create enormous opportunities,” Sternberg says.
“Europe is not set to be the next boom but in a world moving to knowledge based economies, western and parts of Eastern Europe are up to or even beyond US standards.”
However Sternberg says this is the reason Asia has yet to truly recover from its meltdown a few years ago as it has not adequately addressed the structural issues which were the cause of the crisis.
He cites the dependence on large capital and cheap labour as holding back development but says any educational changes will not be evident for many generations.
“The bounceback for Asia occurred too quickly and in the rush to get back on their feet these issues were not addressed,” Sternberg says.
At the same time, Sternberg says these markets still hold great advantages as companies are not well known and have not been touted to all the major investment houses.
As such, he says for those willing to pick stocks there are great opportunities with solid returns even when markets are in a downturn.
