US 2008 outlook by Greg Kerr, manager of the New Star US Opportunities and Global Equity Funds
“I believe that as 2008 progresses the market should grow tired of hearing about the US housing downturn and should start to focus on some of the more positive aspects of the US economy. If we go back over the last 50 years the average length of the residential construction cycle in the US is two and a half years so we should be well past the half way line by early 2008 and looking towards recovery going into 2009.
“Export growth should have narrowed the current account deficit and the federal fund target rate should be low, with the Federal Reserve having reacted to the economic growth slowdown and housing crisis by easing monetary policy. This should be supportive of equities.
“Investors should also begin to appreciate that US equities look good value. Lowly rated financials make up about one third of the value of European indices compared to 19% of the US market, so to strip out financials and the US market is actually cheaper. With higher cash flow returns and traditionally better management US companies are likely to attract investor attention as worries about the slowdown recede. Moreover, the US dollar is cheap on both a trade weighted and purchasing power parity basis. Just ask any European who has recently been shopping in New York. Investors may therefore want to consider loading up on US equities at an attractive exchange rate.
“Finally, the US goes to the polls in November 2008 so the general public will get caught up in the campaign. Since President Bush cannot serve a third term a new broom will be elected and the ensuing optimism should be reflected in the markets.”
Past performance is not necessarily a guide to future performance. The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice. The value of investments and any income from them may fall as well as rise and may also increase or decrease as a result of changes in exchange rates between currencies. Investors may not get back the amount originally invested.