One of the major questions facing global investors is: What will happen in the US economy?
According to Paul Hansen, group director for retail investing at Stanlib, the United States Federal Reserve Bank has taken aggressive corrective action that should stimulate the economy by the second half of 2008.
The US dollar has over the past year been one of the world’s weakest currencies, but Hansen believes that could change, which could see European economies weaken and require them to lower interest rates. The Federal Reserve Bank has lowered interest rates in the United States from 5,25% in September 2007 to 2,25% today.
“The economy in the United States is fundamentally sound, with the only real problem being the residential property market (the sub-prime crisis).
Exports remain strong, business still has plenty of cash on the balance sheet and commercial property is also quite resilient.
“The government has a massive $400-billion plan to tackle the housing issue by encouraging banks to take some of the knock to avoid foreclosing on homes. Also, cheques are being sent out to taxpayers starting this week to get them spending again,” says Hansen.
“The Reserve Bank is slowly getting on top of the problem, plugging all the holes as they appear. There’s a feeling the United States economy is on its way to recovery by the second half of this year,” he says.
There are some bargains to be had because many assets are under-priced while corporate returns outside the banking sector are still healthy.
“Many companies are fully globalised and they are additionally benefiting from high growth in their foreign subsidiaries, where there is still strong growth.
“Stock markets are currently undervalued, so this is a good opportunity to buy into a global economy that is still in good shape, notwithstanding soaring food and fuel prices. European companies are currently announcing surprisingly strong earnings and this has resulted in a recent recovery in market prices,” he says.
“The world is still producing a great deal of wealth. For instance, a recent report showed that Moscow is home to more dollar billionaires than any other city in the world,” says Hansen.