Credit crunch stalls growth
Despite uncertainty caused by the recent downturn in the US equity markets, a leading global investment manager believes the strong prevailing macro trends will continue.
BlackRock Investment Managers vice president and chief investment officer of equities Bob Doll said from a longer-term viewpoint investors should remain optimistic and keep the recent market correction in perspective. “Stocks have been enjoying a bull market since October 2002, and over the past year US stocks are up 25 per cent. What so far has been a roughly 5 per cent correction (and may yet be a bit more) is best described as a ‘bull correction’, a normal consolidation within a bull market,” Doll said.
“Our views remain unchanged. At the beginning of the year, when the S&P 500 Index was at 1,418, we projected a year-end target of around 1,550. To us, this year-end number still seems reasonable and would certainly fall into the range of what we have been calling a ‘reasonably constructive’ year.”
His comments came as US stocks experienced their worst week since September 2002, Asian markets lost between 2 and 3 per cent and European stocks experienced a downturn.
According to Doll, the main catalyst for this decline is what is known as the ‘July credit crunch’. Fuelled by the sub-prime mortgage meltdown and low credit investments, “many investors have been concerned that credit contagion could continue to have a wider impact on the broader economy and other financial assets.”
As a result, Doll believes we will experience a drying up of credit availability and has high expectations for Federal Reserve interest rate cuts.
“The main risk is that we do not believe we have seen the end of the credit crunch. We anticipate that credit availability will continue to shrink and that residential real estate will continue to experience problems. The extent to which this will all happen is, of course, an open question, and is one that will continue to fuel uncertainty in the (equity) markets,” Doll said.
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