By Leo Bland Morley Fund Management is overweight technology and growth stocks in the US on a six to...
By Leo Bland
Morley Fund Management is overweight technology and growth stocks in the US on a six to 12 month view, despite the sector's outperformance last year, and has cut weightings in cyclical stocks.
US equities gave a return of 20.6% in 1999, compared with 28.3% for the FT/S&P World index. Against this the average S&P 500 stock saw a fall of 1.4% last year and the return on the S&P 500 index excluding technology was 2.5% compared with 19.5% for the index as a whole during last year.
Charles Brand, head of global equities at Morley, CGU's investment arm, said: "The pace of economic expansion and the increasing likelihood that Alan Greenspan will move decisively to slow the rate of growth has raised the risks in the short term. However, our central expectation is still for a soft landing and a favourable environment for equities."
The group believes earnings growth prospects for new economy stocks and liquidity flows are likely to continue to support the market in the US.
Morley is also overweight tech, media and telecoms in the UK and expects the growth rate in the UK to accelerate to 3.3% this year, up from 1.9% during 1999. Morley is forecasting the rate of growth in the UK will slow to 2.8% during 2001 and that the retail price index excluding mortgage interest payments will rise by 2.3% this year and in 2001.
Graham Crerar, head of UK equities at Morley, said: "We continue to favour stocks with strong growth prospects, as they offer the only source of strong earnings growth in the current low inflation environment.
"Rising rates and the strength of sterling will continue to weigh down on industrial stocks, while consumer cyclical companies like retailers and brewers are still held back by structural issues of overcapacity and their lack of ability to raise prices.
"We are neutral utilities and resources stocks and underweight industrials and consumer cyclical stocks. We like pharmaceuticals at the current levels but believe political concerns may constrain the sector in the short term."
Morley believes that growth, software and internet stocks will lead the market in Japan but feels the equity market is vulnerable to a Wall Street correction. Japanese equities saw returns of 56.3% during 1999.
Mamoru Imai, managing director of Morley Fund Management Japan, said: "Although leadership in the market is quite unclear in the short term, we are optimistic about the overall outlook.
"Sentiment has not deteriorated and corporate restructuring is on schedule. With support from both fiscal and monetary policy, the modest recovery in the domestic economy should continue.
"There is a concern about the effect of a pick-up in the unwinding of corporate cross shareholdings. In anticipation of such selling pressure, corporate management may make greater efforts to improve the attractiveness of their shares."
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