European funds pin hopes on profit rebound in US
Just when many investors are acknowledging the sudden swoon of US stocks as the sign of a market top, some of Europe’s biggest money managers are anticipating a profit rebound for American companies and slowing earnings growth at home.
By Agencies |
LONDON/NEW YORK: Just when many investors are acknowledging the sudden swoon of US stocks as the sign of a market top, some of Europe’s biggest money managers are anticipating a profit rebound for American companies and slowing earnings growth at home.
While analysts say corporations in the Standard & Poor’s 500 Index are poised for their first quarterly decline in earnings since 2002, Fortis Private Banking, New Star Asset Management and CCLA Investment Management, which together oversee $127 billion, are looking forward to faster growth next year. The weakening dollar and lower interest rates give US companies the advantage.
Analysts boosted 2008 US estimates to 12% in the past two months, and cut those for Europe to 11%, according to data compiled by Bloomberg. The last time American companies grew faster was in 2004.
“We see a good earnings evolution in the US, where most negative news has been priced in the market,” said Guillaume Duchesne, a Luxembourg-based equity strategist at Fortis, which oversees $76 billion. “In Europe expectations are high so the risk of bad news is more important.”
Fortis raised its allocation for American stocks to “overweight” for the first time in more than a year and cut its holdings in Europe, Duchesne said.
Stocks in Europe fell on Monday after the Group of Seven finance ministers and central bankers said the turmoil in the credit markets will slow economic growth. Asian shares and US stock-index futures also declined.
Europe’s Dow Jones Stoxx 600 Index lost 1.4% to 375.43 in London, the biggest slide in a month. The Morgan Stanley Capital International Asia-Pacific Index retreated 1.9% to 162.55, while S&P 500 futures dropped 0.4%.
The US bulls already had a dose of bad news last week. The S&P 500 fell 3.9% to 1,500.63, the biggest decline since July, after Federal Reserve Chairman Ben S Bernanke said the worst housing slump in 16 years may continue through 2008.
Companies from Bank of America in Charlotte, North Carolina, to Peoria, Illinois-based Caterpillar, the world’s largest maker of bulldozers and dump trucks, reported third-quarter earnings below analyst forecasts.
Caterpillar, a beneficiary of the declining dollar, said in a statement the US economy will be “near to, or even in, recession,” next year, nullifying the effects of booming sales abroad.
Stocks in the S&P 500 traded at 18 times earnings this month, the most expensive compared with Europe’s Stoxx 600 since 2005, where shares were valued at an average 13.9 times profit. The Stoxx 600 declined 2.5% last week to 380.88, its biggest drop since the first week of September.
US valuations are too high for Thomas Schuessler, a fund manager at DWS Investments in Frankfurt who helps oversee $381 billion.
“While the US has become more attractive, the tricky part is how low will the dollar go,” said Schuessler. “The stock market may do better, but you lose it on the currency. For a European investor the S&P 500 is not really attractive.” The S&P 500’s 5.8% gain this year turns into a 2.2% loss for euro-based investors after taking into account the dollar’s 7.7% decline this year against the currency shared by 13 European nations. The dollar fell to a record low of $1.4319 against the euro last week.
US earnings may get a boost as the dollar makes American goods more competitive, analysts’ estimates compiled by Bloomberg suggest. Analysts raised their 2008 forecasts for S&P 500 profit gains to 12.2% from 11.3% in the past two months, Bloomberg data show. They also cut their growth estimates for companies in the Stoxx 600 to 10.9% from 11.6%. The likelihood the Fed will reduce its target rate for overnight loans between banks to 4.25% from 4.75% by year-end rose to 74% last week from 15% a week earlier, according to Fed Fund Futures. The European Central Bank has raised its key interest rate eight times to 4% from 2% in November 2005.
A Merrill Lynch survey of investors overseeing $671 billion found those planning to boost European holdings fell to 11% in October from 20%, while 21% may put more money in the US.
The poll of 209 managers between October 5 and October 11 showed 1% expect Europe, excluding the UK, to produce the best profit growth. That’s the lowest since 2005. Last month, 23% said the region had the best prospects. Investors cited interest-rate hike by the ECB as one reason for turning less bullish on European equities.
“Investors have priced in continuous strong growth in Europe and momentum is fading,” said Gregor Logan, co-chief investment officer at New Star in London. “In the US, there is much less growth but hopefully momentum is about to turn.”
The firm, which runs $41 billion, has increased US shares in its Global Equity Fund by 17% to 46.4% since July and reduced German, Italian and Swiss stocks to 7.8%. New Star added New York-based Merrill, Lehman Brothers Holdings and Bear Stearns, fund documents show..
While analysts say corporations in the Standard & Poor’s 500 Index are poised for their first quarterly decline in earnings since 2002, Fortis Private Banking, New Star Asset Management and CCLA Investment Management, which together oversee $127 billion, are looking forward to faster growth next year. The weakening dollar and lower interest rates give US companies the advantage.
Analysts boosted 2008 US estimates to 12% in the past two months, and cut those for Europe to 11%, according to data compiled by Bloomberg. The last time American companies grew faster was in 2004.
“We see a good earnings evolution in the US, where most negative news has been priced in the market,” said Guillaume Duchesne, a Luxembourg-based equity strategist at Fortis, which oversees $76 billion. “In Europe expectations are high so the risk of bad news is more important.”
Fortis raised its allocation for American stocks to “overweight” for the first time in more than a year and cut its holdings in Europe, Duchesne said.
Stocks in Europe fell on Monday after the Group of Seven finance ministers and central bankers said the turmoil in the credit markets will slow economic growth. Asian shares and US stock-index futures also declined.
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Europe’s Dow Jones Stoxx 600 Index lost 1.4% to 375.43 in London, the biggest slide in a month. The Morgan Stanley Capital International Asia-Pacific Index retreated 1.9% to 162.55, while S&P 500 futures dropped 0.4%.
The US bulls already had a dose of bad news last week. The S&P 500 fell 3.9% to 1,500.63, the biggest decline since July, after Federal Reserve Chairman Ben S Bernanke said the worst housing slump in 16 years may continue through 2008.
Companies from Bank of America in Charlotte, North Carolina, to Peoria, Illinois-based Caterpillar, the world’s largest maker of bulldozers and dump trucks, reported third-quarter earnings below analyst forecasts.
Caterpillar, a beneficiary of the declining dollar, said in a statement the US economy will be “near to, or even in, recession,” next year, nullifying the effects of booming sales abroad.
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Stocks in the S&P 500 traded at 18 times earnings this month, the most expensive compared with Europe’s Stoxx 600 since 2005, where shares were valued at an average 13.9 times profit. The Stoxx 600 declined 2.5% last week to 380.88, its biggest drop since the first week of September.
US valuations are too high for Thomas Schuessler, a fund manager at DWS Investments in Frankfurt who helps oversee $381 billion.
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“While the US has become more attractive, the tricky part is how low will the dollar go,” said Schuessler. “The stock market may do better, but you lose it on the currency. For a European investor the S&P 500 is not really attractive.” The S&P 500’s 5.8% gain this year turns into a 2.2% loss for euro-based investors after taking into account the dollar’s 7.7% decline this year against the currency shared by 13 European nations. The dollar fell to a record low of $1.4319 against the euro last week.
US earnings may get a boost as the dollar makes American goods more competitive, analysts’ estimates compiled by Bloomberg suggest. Analysts raised their 2008 forecasts for S&P 500 profit gains to 12.2% from 11.3% in the past two months, Bloomberg data show. They also cut their growth estimates for companies in the Stoxx 600 to 10.9% from 11.6%. The likelihood the Fed will reduce its target rate for overnight loans between banks to 4.25% from 4.75% by year-end rose to 74% last week from 15% a week earlier, according to Fed Fund Futures. The European Central Bank has raised its key interest rate eight times to 4% from 2% in November 2005.
A Merrill Lynch survey of investors overseeing $671 billion found those planning to boost European holdings fell to 11% in October from 20%, while 21% may put more money in the US.
The poll of 209 managers between October 5 and October 11 showed 1% expect Europe, excluding the UK, to produce the best profit growth. That’s the lowest since 2005. Last month, 23% said the region had the best prospects. Investors cited interest-rate hike by the ECB as one reason for turning less bullish on European equities.
“Investors have priced in continuous strong growth in Europe and momentum is fading,” said Gregor Logan, co-chief investment officer at New Star in London. “In the US, there is much less growth but hopefully momentum is about to turn.”
The firm, which runs $41 billion, has increased US shares in its Global Equity Fund by 17% to 46.4% since July and reduced German, Italian and Swiss stocks to 7.8%. New Star added New York-based Merrill, Lehman Brothers Holdings and Bear Stearns, fund documents show..
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