Dec 2008-Jan 2009

NEWSLETTER: Strong nerves a must

Let’s talk about
President-elect Obama. As well as rock concerts and the world’s biggest
ever security operation, Mr Obama’s arrival at the White House will
bring positive developments in infrastructure investment, according to
Scottish Widows Investment Partnership (SWIP). US infrastructure is starting to creak, says SWIP, with a lot of ageing equipment built in the 1940s and 1950s requiring investment. President-elect Obama’s proposed $800bn economic stimulus plan will sort that out and infrastructure-related companies will benefit.

“The US needs to invest in capital equipment in order to ensure the economy recovers over the long-term,” says Nick Ford, US equity fund manager at SWIP. “This in turn will provide opportunities for US companies providing materials and services for power, highways, bridges and water supply, all of which will need upgrading over the coming years.”

J.P. Morgan Asset Management also sees a beacon of hope in the new president, predicting a possible US market rally in the first quarter of 2009. “Economic programmes in the US should support consumption as well as medium-sized companies,” says Christian Preussner, a US equity expert at J.P. Morgan Asset Management in Frankfurt.

The problems facing the new president are legion, however, as even the optimistic Mr Preussner concedes. One should not indulge in “overinflated hopes of a recovery”, he warns.

Indeed not. The new president will have to deal with 11 million unemployed, a collapsing housing market and a budget deficit likely to rise to an historical high of $1 trillion. And then there’s those pesky banks. Can the bail-out packages formulated by Mr Obama and others around the globe rescue them or are they, as some commentators suggest, crash landing after a 25-year supercycle? Answers on a postcard, please...

The way ahead looks turbulent indeed. “Investors will need strong nerves,” says Mr Preussner. You can say that again.

©2009 Funds Europe

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