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IPE Awards: Fund managers, attendees dismiss risk of Japan-like recession

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  • IPE Awards: Fund managers, attendees dismiss risk of Japan-like recession

GLOBAL - US equities are not overvalued, and the market is not heading for a crisis reminiscent of that faced by Japan in the 1990s, the chief investment officer of Newton Investment Management has argued.

Speaking at the IPE Awards Seminar in Brussels, Jeff Munroe conceded that, while many view the US stock market as overvalued - a problem previously found at the beginning of Japan’s recession - he disagreed, saying they were not “spectacularly overvalued” as were Japan’s equities at the time.

He said it would be a “disaster” if Western stocks underperformed fixed income over the next decade.

In a panel discussion with fellow CIOs on the question of whether the sovereign debt crisis would lead to the global market emulating Japan’s downturn, he told attendees: “We’ve already had a couple of decades of very, very weak relative equity performance, and, in terms of the long-term effects on risk taking and people’s ability and willingness to invest in risk capital, that is very, very damaging.

“If you had another decade of that, we’d have a much more serious problem.

When polled, however, only 23% of seminar attendees agreed the Western world would see an economic scenario akin to the country’s lost decade.

Paul Colonna, president and chief executive at GE Asset Management, said he counted himself as one of the 23%.

“Certainly, the circumstances will not be identical in terms of the developed world and the Japanese situation in the 1990s, but there are many broad similarities,” he said, citing the United States’ demographic changes and disharmony between government and opposition, in addition to two further points he regarded as self-evident - the low interest rate and low growth environment.

He admitted the path for the US was “worrisome” and criticised the political leadership for lacking clarity.

“The political process in the United States is one, certainly, that I question right now,” he said.

He said it was similar to Japan insofar as there was no clear message in the country whether it would see austerity or fiscal stimulus.

Munroe said he had “great sympathy” for investors opting to retreat into fixed income at the moment.

However, he warned that bonds did not offer a “tremendous margin of safety” unless one opted for credits.

“In this environment, where governments are in some places very willing to print more money to provide support to their economies, you have to be very careful about fixed income,” he said.

“You have to be quite nimble and prepared to move quite quickly.”

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