Group says US turnaround is imminent and is adjusting portfolios accordingly
SG Asset Management is adjusting its portfolios in the belief that the US market is about to turn around.
Sam Mercer-Nairne, manager of SocGen American Growth, said: 'There are signs the US economy has hit a bottom and we do not believe in a recession.'
According to Mercer-Nairne, inventory levels, interest rates and tax rebates in the US will be the drivers of an imminent recovery. He said: 'The work down in inventories in the second quarter was around $27bn, which is a record and should be sufficient to rebalance the supply chain. Both GM and Texas are happy with inventory levels and are looking forward to a pick-up in demand.'
Additionally, interest rates have been cut by 300 basis points in the past eight months. Mercer-Nairne said: 'The impact is normally seen six to nine months after the initial cut and we are now eight months behind.'
The final factor Mercer-Nairne believes will boost the US is the $1.35 trillion plan to return cheques to the taxpayer. He claims this rebate has meant a $60bn cash injection to the consumer market. 'This has had a 1% incremental effect on the growth rate of fourth quarter GDP,' he said
Alan Torry, manager of SocGen American Growth, believes 1% incremental growth is dependent on how much of the rebate is spent. He said: 'The 1% figure assumes half will be spent. We are trying to understand what the consumers will do with their rebates.'
Mercer-Nairne added that US corporates are suffering and said there has been a significant decrease in profitability. Even so, he forecasts that as underlying demand and GDP improves, so too will profitability.
He is overweight technology, believing the bad news has been factored into the price and valuations look attractive. He said: 'We are looking to increase our exposure to cyclicals and decrease our defensive weighting as the valuations now look unappealing.'
As a result of the rebate in the US and reduced interest rates in the UK, Adrian Gosden, manager of the SocGen UK Income Trust, is increasingly optimistic. He said: 'The consumer is robust but it is still a dangerous environment as UK companies are lowering their inventories and production.'
Over the past year, Gosden has held on to less economically-sensitive shares such as pharmaceuticals and tobacco, which he is now reducing as the FTSE 100 heads towards 5,300.
He said: 'We believe this is an opportunity to get into the market and we have increased our weightings in transport, construction, leisure and mining. This is being done gradually as the market does remain volatile but we want to be positioned economically sensitively and be 100% equity exposed.'
The SocGen UK Growth fund is also underweight pharmaceuticals, oils and banks, while overweight construction. Its manager, Peter Seabrook, said he and Gosden share their stock ideas.
Stuart Gilmartin, manager of the SocGen European Growth fund, is underweight resources and is looking for the oil price to drop before correcting this. He said: 'We have started to correct our underweight position in information technology and have added Ericsson. There is low competition in this area and we do not want to be out of a significant bounce back. We are also overweight basic industries, which is largely construction, as France and Spain are spending a lot of money on infrastructure.
'The European market is a highly geared play on the US and Europe will lag the turnaround.'
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