By Ruth Alexander Credit Suisse First Boston is expecting a 40% slowdown in the US economy to have ...
By Ruth Alexander
Credit Suisse First Boston is expecting a 40% slowdown in the US economy to have a knock-on effect on other countries and believes the possibility of a hard landing remains real.
In its forecast for 2001, the investment bank said this year will be a fiscal turning point in the US and Europe as it moves from neutral to expansionary after a decade of tight fiscal policies.
However, UK investment management groups are more positive on the outlook for the US and global markets.
While Framlington believes global growth is likely to slow to around 3% from the 4% and above recorded in 2000, the group believes much of this is already reflected in market prices.
Simon Key, chief investment officer at Framlington, said the outlook for the US is not as negative as many commentators suggest.
He said commentators ignore the fact that US savings are not as low as claimed if they are measured on an international basis and that the current account deficit is overstated.
He added debt levels would only cause a problem if interest rates rise again.
Aberdeen Asset Management's global strategist, Andy Brunner, said a US recession is not expected given the further prospect of monetary easing by the Federal Reserve which may well exceed 50 basis points in the first half of the year.
Brunner said: "Although some further short-term weakness is probable, equity markets are expected to outperform bonds and cash in 2001 as hard landing fears subside." Brunner favours the US market for 2001, expecting earnings growth of between 8% and 10%. He said this, alongside falling interest rates and less onerous valuations, should enable the S&P composite to move ahead in 2001.
Tony Broccardo, the co-head of global products at Invesco, is neutral on the US market heading into 2001 and instead favours the UK market. Brunner said the UK's sound macro economic background should deliver decent growth, low inflation and falling interest rates. He said corporate earnings growth of 7-8% is likely, although profit warnings will predominate ahead of the main reporting season.
Peter Brewster, head of market research at Chase Fleming Asset Management, said: "Our investor confidence research index has risen for two months in a row, indicating a degree of optimism on behalf of investors that things will improve and the UK stock market will recover.
"Perhaps investors were anticipating an interest rate cut that would help to boost equity markets."
Brunner said profit growth in Europe will slow to between 5 and 10% this year. He said GDP growth will slow towards 2.5%, but that it is underpinned by tax cuts, falling unemployment and rising real wages.
Mark Mobius, president of Franklin Templeton Emerging Markets funds said turbulence is likely to continue in most emerging markets in the short-term as investors recuperate from the losses of 2000 and take a more cautious attitude. However, he said this offers excellent opportunities for investors.
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