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Mitt Romney: savior of corporate America?

If Mitt Romney were to win the US presidential election it could lead to giant corporate balance sheets being put to use, Morgan Stanley says.

Mitt Romney: savior of corporate America?

Much has been said about the tidal wave of cash currently sloshing around on corporate balance sheets and the impact it could have on markets when unleashed, but the long-standing question remains: what will unlock it?

For Morgan Stanley, Mitt Romney is the key: it believes a victory for the US Republican presidential candidate is a potential catalyst for an economy-boosting corporate spending binge.

Could Romney prove to be the key?

‘To us, the biggest bull case for US equities is based on the huge cash balances and the potential belief that they will be more actively and productively deployed,’ said chief US equity strategist Adam Parker.

‘The biggest possibility here would be Romney winning the presidential election. Our guess is that the market multiple would expand if in fact more investors started believing Romney will win.’

But despite what investors believe will happen in November, the odds are clearly against a Romney victory, with Barack Obama the bookies’ odds-on favourite.

And unlike Morgan Stanley, US market commentator Cullen Roche of Pragmatic Capitalism believes it will ultimately make little difference which candidate wins.

Closet Keynesian?

‘It’s an interesting observation,’ he says. ‘Romney’s a closet Keynesian and much of his “balance budget” rhetoric could turn out to be nothing more than election talk.

‘Plus, a continued Obama presidency is likely to run into further stonewalling in Congress. Romney, the stock market friendly candidate? Hard to imagine given the fact that Obama’s presidency has been unusually friendly to the equity markets in his first term.’

The figures really underline the potential if either candidate can persuade corporate America to loosen its purse strings. The level of cash on corporate balance sheets has doubled over the past five years and now stands well above $1 trillion, equivalent to between 11% and 12% of total market capitalisation.

Andrew Milligan, head of global strategy at Standard Life Investments, said: ‘The same phenomenon has been seen elsewhere though, across Asia, Europe, Latin America and the UK. The counterpart, in many cases, is low levels of debt – for example in the UK net debt/earnings (excluding financials) has reached the lowest levels for eight years.’

Sector variation

Although the total figures are high, there is a massive disparity between different sectors. In the UK this ranges from 27% for technology and 19% for healthcare down to between 4% and 6% for energy, telecoms, utilities and consumer discretionary companies.

Mergers and acquisitions activity has so far disappointed as clearly firms are sitting back and waiting for tangible signs of a sustained rise in economic activity, but there are some positives. Broad capacity utilisation in the US is back up to 79%, close to its long-term average while for some areas, such as machinery, it is as high as 85%.

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9 comments so far. Why not have your say?

Rob Walker

Aug 17, 2012 at 06:58

Sadly this article is written as if the result would be good news. We saw the in the last 'Completely Bull' market with George Bush which the world is still paying for. As soon as confidence returns the thieves are back in town. Why do these optimists keep hitting themselves?

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Chris Clark

Aug 17, 2012 at 07:09

I rather feel Corporate America's future is somewhat tied up with solving the Eurozone cash log jam. But possibly Mitt might be good for the tax bills of the business owners.

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Matthew Andrews

Aug 17, 2012 at 09:15

Please do us the favor and the honor of writing in English not American!

The word is Saviour!

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Jo Public

Aug 17, 2012 at 09:21

They may be good for the stock market, but the stock market has to exist in a world. And I wonder what Romney & Ryan will do for world stability in what are already difficult circumstances. The stock markets may love their election, but one moment of madness over (say) Iran could cause an almighty plunge - and remember that Romney is recorded on TV describing Syria as "Iran's route to the sea".

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William Bishop

Aug 17, 2012 at 10:06

Because of the separation of powers, in most circumstances the President has very much less control over domestic policy than he does over foreign. I wouldn't get too excited.

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Graham D-C

Aug 18, 2012 at 10:32

The last Republican president Americans voted into office was the dumbest of my not inconsiderable lifespan todate, a man who did not know that the population in Iraq was religiously divided largely between Sunni and Shia muslims. His election coincided with our own fateful election of Blair -America's greatest foreign sychophant ever. The combination of this union led to the UK entering two wars that were none of its business and destined to be lost before they even began. If Americans want to repeat the folly of electing another Republican who might be a litle smarter than G W Bush, then so be it; however if they have had enough after two lost wars, then common sense will prevail with Obama being re-elected.

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Aug 18, 2012 at 11:01

Republican propaganda.

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Keith Phillips

Aug 18, 2012 at 17:54

One has to ask why, if Corporate America is responsible America why they are not already using their considerable cash balances to help America to grow out of recession now. Is it because if America starts to grow with a Republican they will stand to make more personal money than with a Democratic President? It is always for the greater good of self and to hell with the rest.

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Jeremy Bosk

Aug 18, 2012 at 20:36

Romney is an evil lunatic who will order his British janissaries into more useless wars.

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