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.
CFPs on the rise
There are now more than 36,000 Certified Financial Planners operating in the US, with about 1,000 new members joining the elite financial planning club this year. According to figures from the CFP Board of Standards, there are now 36,221 CFP professionals in its US database, up from 35,312 at the end of January. Only one in four CFPs in the US are women and two thirds are between the ages of 40 and 60, according to the CFP Board. There are now 2847 CFPs in Australia, according to Financial Planning Association (FPA) figures, which is two thirds of all financial planners who are members of the FPA.
Swiss Re purchase
Swiss Re has purchased US-based Underwriters Re, the property and casualty reinsurer of Alleghany Corp for $US725 million ($A1.1 billion). The sale will establish Swiss Re as a strong player in the US reinsurance market. Not included in the deal are the London-based Lloyd’s operations of Underwriters Re, which Alleghany will retain. At the end of 1998, Underwriters Re had total gross premiums of $US549 million ($A840.5 million) and assets of $US1.7 billion ($A2.6 billion), excluding the Lloyd’s business.
E*Trade deal
Internet stockbroking group E*Trade may offer personal financial advice services online, following a deal struck with internet investment advice group DirectAdvice.com. DirectAdvice offers specific recommendations on asset-allocation, mutual funds and savings plans.
Electronic signatures
US fund managers have taken advantage of laws allowing them to sell funds over the Internet using electronic signatures. In the week since the Electronic Signature in Global and National Commerce Act took effect, Fidelity, Vanguard and American Century have offered investors the service which allows them to open accounts with fund managers without putting pen to paper. Australian investors have been able to sign up for funds electronically for most of this year, following a ruling by the Australian Securities and Investment Commission (ASIC) in February. However, fund managers have been slow to take it up, fearing the regulations lack the bite of legislation. US managers faced a similar predicament until October 1. Prior to then, only a handful of smaller fund companies offered e-signature capabilities.
Allianz acquisition
German-based Allianz is to acquire US-based fund manager Nicholas-Applegate for up to $US2 billion, according to the Investor News Service. Nicholas-Applegate is a growth manager that is used by a number of Australian superannuation funds and ANZ Funds Management’s global technology fund, will add about $US45 billion in assets to Allianz’s $US650 billion under management worldwide. Nicholas Applegate won the bidding for the manager ahead of American International Group and John Nuveen, according to INS reported.
Aberdeen buys big
Aberdeen Asset Management has acquired Scottish fund manager Murray Johnstone for £150 million ($US218 million), adding £4.3 billion of funds under management, according to the Financial Times newspaper. The move follows the decision by United Asset Management to sell the group earlier this year after United was bought by South African-based Old Mutual.
