Investors need to look beyond the latest headlines on the Eurozone debt crisis, fear of economic slowdown in China and the potential for a double-dip recession in the U.S., Leo Grohowski, chief investment officer of BNY Mellon Wealth Management, said in the firm’s recent Investment Insights. “Investors can’t afford to be paralyzed by turbulence and uncertainty in the global markets,” Grohowski said. Instead, they should be prepared to be “nimble to actively uncover investing opportunities rooted in solid fundamentals.”
Where are those opportunities? The strength of U.S. corporations has been largely overlooked, BNY Mellon said. In fact, U.S. equities are on pace to deliver returns of 10% to 15% over the next 12 months, said Jack Malvey, chief global markets strategist and director of BNY Mellon’s Center for Global Investment and Market Intelligence. Fundamentals remain strong, BNY Mellon added: Since 2001, U.S. corporations have been delivering a 15% increase in operating profits year over year.
Furthermore, Malvey said he believes in “the probability of stronger economic growth after 2012,” noting, “Corporate earnings growth remains positive, and we might also see increases in merger and acquisition activity, equity buybacks or dividends.”
BNY Mellon points to the trillions of dollars in corporations’ cash reserves because of the past four years of “drastic cost-cutting measures.” These companies, “rich in cash,” BNY Mellon said, “are beginning to deploy their capital—meaning that stock dividends, once again, are becoming an increasingly important part of total return. We continue to overweight large-cap stocks due to their strong balance sheets, exposure to relatively healthy emerging markets and high levels of cash.”
Last, while monetary and fiscal policies deployed in the face of the Great Recession will mean deleveraging of debt for many years to come, BNY Mellon praised the U.S. government for its actions in avoiding a depression in 2008 and a double-dip recession in 2011. It now appears likely that the Federal Reserve will take additional action this year to stimulate growth, BNY Mellon said.
The asset management firm is forecasting global economic growth of 3.0% in 2012—and 5% to 6% in emerging markets.