US downturn fears unfounded

05-Feb-2016

By Sarah Kendell

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There is no danger of the United States falling into recession this year as a result of the Chinese economic downturn and falling oil prices.

Speaking at a media briefing in Sydney yesterday, Wingate Asset Management chief investment officer Chad Padowitz said speculation of a US downturn had been overblown as most companies were insulated from ongoing troubles in China and from low oil prices.

“Only 1 per cent of US GDP (gross domestic product) is imported to China, and only 0.1 per cent of all US workers are employed in the oil industry – it’s actually mostly a service economy,” Padowitz said.

“With wages and employment growth continuing to be high, we don’t think there is any danger of a recession.”

He said ongoing volatility in global equity markets over the past six months had created a ‘fear trade’, as investors flocked to consumer staples in their equity investments and exited global banks, which were traditionally the most affected in a recession.

“The banks at the moment are a proxy for pessimism, but global banks today are very different from what they were seven or eight years ago – their bad debts and non-conforming loans are pristine,” he said.

“For this reason we think they actually represent a significant opportunity at the moment.”

By contrast, Platypus Asset Management chief investment officer Don Williams advised that Australian banks were looking less attractive in 2016.

“It seems that the love affair with yield from the banks is waning as earnings per share growth has dissipated dramatically,” Williams said.

The Australian equities manager held the major banks except ANZ in its portfolio, but had a large underweight position, he said.

“If you’re trying to design a portfolio with good growth at the moment, you can’t have too many banks in there,” he said.

He added the firm preferred industrial and telecommunications stocks as growth opportunities in 2016.

“Although the Australian market has been tracking sideways for a while now, there are still some good opportunities,” he said.

“For instance, we have seen positive earnings per share growth in most of the major industrials stocks.”

For resources, he said he believed the outlook was likely to continue to be bleak.

“If there’s another growth pulse in about two years, we might see some appreciation, but until then we see commodities prices tracking sideways,” he said.

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