Tuesday, September 17, 2013

The Macro View According to Credit Suisse

I will be traveling in Europe for the next 10 days.  Next Random Glenings post will be Monday, September 30.
Credit Suisse's global equity strategist Andrew Garthwaite was in town yesterday, and I had the chance to go hear his latest thoughts.
Budapest TravelAs he had been earlier this year, Andrew remains bullish on most global equity markets. Valuations remain reasonable relative to history, and economic trends in most part of the world remain positive. He also noted that equity allocation among institutional investors in many parts of the world are at multi-decade lows, and this group would probably use any market pullback to add to positions.
Andrew continues to use one of the largest groups of presentation slides (over 600 pages!) of any Wall Street analyst, so it would be impossible to present all of his thoughts here.  However, here were some of the highlights:

  • Global GDP growth will probably be north of 2 1/2% next year.  Given that the faster-growing emerging market countries now represent 40% of total global growth, this estimate may be too low;
  • U.S. growth could surprise on the upside, particularly if some sort of resolution is reached on fiscal policy in Washington.  Andrew is not too worried about the effect of higher mortgage rates on housing, as affordability still remains attractive relative to history;
  • Industrial stocks seem particularly interesting given the fact that the average age of auto stock and capital stock in the U.S. is at a 30 year high;
  • Andrew figures that the European community if about 70% through the crisis.  He likes most European markets, and favors Italian stocks in particular for those with a strong stomach;
  • Chinese growth is likely to slow to the 5% to 6% range, down from 7% currently. Andrew noted that Chinese savers endured negative real returns over the past decade to the benefit of the housing sector, and now the bill has come due;
  • Andrew generally bearish on the outlook for oil. One of the few areas of stocks that he does not like are integrated oil companies.
 Like most analysts, Andrew thinks that interest rates will move modestly higher in the coming year. The U.S. Treasury 10 year note could reach 3.5% by the end of 2014. However, as he doesn't think that any central bank in the world will be raising managed rates before at least 2015, he is relatively sanguine on bonds.

Andrew expects the S&P to close modestly higher from today's levels by the end of 2013, but has a target of 1,900 by the close or 2014. This would represent a gain of around +12% or so, not including dividends.