Ready for ‘roaring zeros’

The first decade of the new century is already being nicknamed the ‘roaring zeros’ in anticipation of a bull run on many of the global market economies.
At a Paris conference last month held by France’s Banque du Louvre, a number of the bank’s multi-manager investment fund partners were asked to provide their analysis of future investment prospects in their respective regions of expertise.
Almost overwhelmingly, it appears, the dawn of a new century is being heralded as a ripe opportunity for a renaissance in investment areas buffeted towards the close of the last century.
Alexander Farman-Farmaian, associate director at WP Stewart in New York commented that the company’s outlook for Y2K was of moderate economic slowdown with lower long-term interest rates, but added: “We will see sustained valuations of stocks though, that do not disappoint.”
And pointing to a survey carried out by the Federal Reserve Bank of Dallas, he said the roaring zeros would be characterised by technology-driven production gains, economic growth, real wage gains and low inflation due to global Internet pressures on suppliers of goods and services. “All this will lead to real wealth accumulation,” he added.
From a business perspective though, Farman-Farmaian pointed out that real wage gains will outstrip top-line inflation and that a ‘me-too’ proliferation of technology competition will drive down profit margins.
“In a such a tough environment for companies to grow and sustain profit growth from an investment perspective, stock picking will be a key performance driver.”
George Robinson, managing director at Sloane Robinson in London, looking to the current Asian and European recovery alongside emerging stability, commented that conditions were ripe for “strong growth” in the new year.
“The Asian recovery has been faster than expected and accumulated surpluses have been very high. Pricing power is returning to exporters and Japanese manufacturers, for example, are increasing their prices,” he said.
“Japan has finished a 10-year bear market and is now in the early stages of a bull market which will last for several years. Emerging markets are also coming out of the worst bear market in a generation.”
He said both markets are presently under-owned but offer good liquidity as well as strong future profit prospects, particularly in the semi-conductor and banking sectors.
Robinson believes this year’s inflection in interest rates foreshadows next year’s boost and points out that medium sized, commodity type, international and value stocks are starting to outperform large US and European growth companies.
Thio Boon Kiat, associate director at UOB asset management in Singapore, added: “We believe the prospects for Hong Kong look good for next year, particularly in the light of agreements on the World Trade Organisation front.”
Richard Garland, international marketing director at US fund manager Janus, compared the surge of today’s technology economy with the railroad boom of the end of the last century.
“The biggest performance in railroad stocks came in the last 20 years of the 1860 to 1910 boom when prices multiplied by thousands. We think the same will apply to the technology and Internet market which is still at the beginning. You ain’t seen nothing yet,” he said.
But he pointed to the need to be invested in the right companies with developed branding, pointing out that those investors who won big in the railroad days held a select few companies while many went to the wall.
However, not all managers were quite so bullish about future investment prospects. John Hague, managing director at Pimco, said that global ‘healing’ will continue, but that the best inflation news and productivity gains may have been seen already.
He added that US equities would pause as a result and also pointed toward the possibility of a trade deficit leading to a currency crisis.
Bill Miller, president of Baltimore-based Legg Mason Capital Management, also stirred up the active/passive debate again for another round in the new century by pointing out the efficiency of the S&P500 index compared to the performance of the stock pickers.
“Active managers have something like a 90% chance of being wrong in their decisions and we believe that the S&P500 will beat them almost all the time. This is not a new phenomenon.”
It looks as though the start to the new century could be equally as buoyant as the last – and equally as difficult to call for investors.

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