Financial planners should look to the US for investment opportunities according to Seligman International regional director for Asia, Joseph Lam who says that market is set to rebound.
Lam has been visiting Australia briefing advisers on the condition of the US market and economy and says the US has stabilised and is set for a turnaround.
Lam says the US has undergone a soft landing and that if it had been a hard landing economic growth would be negative rather than just slowing as it has done.
“Since the last quarter of 1999 and the second quarter of 2001, Growth Domestic Product (GDP) growth has gone from five per cent to 0.7 per cent. So after five quarters, growth in the US not gone negative,” Lam says.
However Lam admits that GDP growth is a lagging indicator and the leading indicators of interest rates, inflation, commodity prices, productivity growth and tax all indicate the US economy is prepared for future growth.
He says interest rates have halved in the last two years and are close to the previous downturn low of three per cent. This has in turn placed some pressure on inflation but Lam points out that since 1926 whenever inflation has hovered around two per cent, the S&P 500 has returned an average of 12 per cent.
Lam also says that commodity prices have dropped in the US and the promised tax rebate and reductions of US$1.36 trillion over the next 10 years will spur spending in the short term.
“The last major tax cut in the US resulted in 50 per cent going back into the economy. This tax year has a rebate of $55 billion dollars so there is a potential $28 billion to be injected back into the economy,” Lam says.
Productivity growth is also strong at 2.8 per cent says Lam, with US products getting cheaper compared to imports. The reason for this is globalisation and the increasingly large presence of US companies.
“These companies have the size, branding and expertise to make more money in the future. But of the top 1000 companies, 300 are trading below the S&P500 price/earnings ratio but havbe higher earnings growth than the average S&P company,” Lam says.
“The US is a good place to look to diversify due to globalisation and I have been telling advisers that at the moment this is where the opportunities are.”
