International Business Opportunities
With the usually strong US beginning to look a little shaky, Alaric
Nightingale takes a closer look at which markets will benefit most
For a few years now, America, the undisputed heavyweight economic
champion of the world, has been acclaimed for creating a new economic
paradigm. The paradigm is simple: low-but-consistent inflation coupled
with strong growth that would continue forever.
Lately, though, three things - high oil prices, slackening output
and an uncertain political climate - have cast doubt on the new
model’s robustness.
International Business Opportunities & The Asset Managers
Asset managers are forecasting shrinking growth and increased volatility
in the US as the economic mood swings to gloomy. In November and December,
admitedly during the US election crisis, the euro made its first sustained
progress against the dollar. Fortunately, the high oil price has eased
off, as has the political uncertainty, leaving only the slackening
economy for us to worry about. The fundamental issue George
W Bush, the new president, must balance is slackening economic output
while at the same time servicing the US’ large financial deficit.
The cut in the interest rate suggested by Al Greenspan helped spark
the markets overnight, but the investment community seems unconvinced.
An important issue is whether any rate cut can do enough to enliven
the US economy.
International Business Opportunities & Gary Potter
“We were pleased to see the macro change in America,”
says Rothschild director Gary Potter (about the likely introduction
of rate cuts). “But there are still some concerns because the
economy is slowing.” Potter believes that, although the
Nasdaq underwent heavy surgery for the best part of 2000 (and particularly
in November and December), it is far from certain the index has
hit rock bottom.
Consequently, the uncertainty in the Nasdaq reflects Rothschild’s
flat position in Asia. “One concern about Asia is that it
is very strongly linked to the Nasdaq,” Potter says.
“But we also accept that opportunities are showing up there
because some stocks have fallen 30, 40 or 50 per cent. If you don’t
believe the world is coming to an end, some of these stocks look
attractive.”
The flip side of Rothschild’s neutrality in Asia and Japan,
and an underweight position in the US, are overweight positions
in the UK and Europe. Rothschild reckons the UK’s relative
under-performance over the past two years is due to be rectified.
International Business Opportunities And Corporate Restructuring
Potter believes corporate restructuring in mainland Europe will produce
strong results for Euroland companies. Overall, Rothschild expects
the global economy to be reasonably stagnant until March/April next
year when the markets, particularly Europe, start to strengthen as
tax cuts kick in. Potter says he is “cautiously optimistic”
for the world because of the room most major economies have to stimulate
growth through tax cuts. Ashburton is holding around 32 per
cent of its assets in equities (it has a rule that half must be
held in bonds), a position that global investment stategist Peter
Lucas describes as neutral. Lucas says: “We still feel there
is lots of medium-term risk. There is still risk to equity markets
but, in the short term, there is a good chance of a year-end recovery
that could run into the new year. It is a question of balancing
the risk with the reward.
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