Credit Suisse pans U.S. in in­vest­ing strat­egy for 2014

Financial Mirror (Cyprus) - - FRONT PAGE -

Credit Suisse is­sued its re­gional al­lo­ca­tion for global in­vestors on Mon­day, where the firm’s Andrew Garth­waite sees sev­eral key changes tak­ing place in the sec­ond half of 2014. Keep in mind that this was also the same day as a tac­ti­cal Gold­man Sachs up­grade of its S&P 500 price tar­get to 2,050. Garth­waite’s al­lo­ca­tion was not ob­vi­ous in di­rec­tion go­ing into the re­port.

The first change was a down­grade of Con­ti­nen­tal Europe from 13% to 8% over­weight, call­ing it in a sum­mer limbo. Rel­a­tive earn­ings re­vi­sions are even worse there, and LTROs will not be im­ple­mented un­til Septem­ber and in­fla­tion is likely to trough in Au­gust. An­other neg­a­tive is a P/E pre­mium run­ning close to 14-year highs. Garth­waite did say the rea­son for not down­grad­ing it fur­ther is that his base case fore­cast over the next three years is for 39% earn­ings per share growth, up to 60% best case, ver­sus a US fore­cast of 28% earn­ings growth.

The United King­dom was down­graded to un­der­weight. Garth­waite said that the UK is the most de­fen­sive ma­jor re­gion at a time when global GDP growth is fore­cast to ac­cel­er­ate. More rate hikes and the no­tion that the UK’s tra­di­tional P/E dis­count has al­most van­ished were two neg­a­tives.

Ja­pan was raised to over­weight, from 2% to 8%. Garth­waite said that ac­cel­er­at­ing pur­chas­ing man­ager data sup­ports Ja­pan, and the firm thinks more quan­ti­ta­tive eas­ing is now 60% likely. Garth­waite even said to Buy Toy­ota Mo­tor and Fuji Heavy In­dus­tries.

Un­for­tu­nately, bad news was given for the United States. Garth­waite sig­naled that in­vestors should re­main un­der­weight the US. Price-to-book ra­tios are close to an all­time high, and then there is the no­tion that the US un­der­per­forms gen­er­ally when global growth reac­cel­er­ates. Then there is the risk of ris­ing rates as well. Lastly, rel­a­tive earn­ings re­vi­sions are peak­ing.

Credit Suisse’s main note is to re­main bench­marked to global emerg­ing mar­kets. Garth­waite said,

“Both cur­rency and eq­uity val­u­a­tion mea­sures are neu­tral. The prob­lems are that we are struc­tural bears of China, un­em­ploy­ment in many re­gions is ab­nor­mally low, pri­vate sec­tor lever­age ab­nor­mally high, and rel­a­tive per­for­mance is closely cor­re­lated with com­modi­ties, on which we are neg­a­tive. The global emerg­ing mar­ket bas­ket now trades as a de­fen­sive group – out­per­form­ing if US bond yields fall.”

The firm also is bi­ased to­ward com­mod­ity im­porters. It is in fa­vor of Korea, In­dia and Tai­wan; but warns that much of Latin Amer­ica still looks unattrac­tive.

Noth­ing in here sounds like any im­mi­nent dan­ger, but it may just be one more neg­a­tive in­stance that the bears can point to in sup­port of bet­ting against US eq­ui­ties.

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