View the article online at http://citywire.co.uk/money/article/a611382
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.
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.
‘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.’
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%.
News sponsored by:
Here at BlackRock, we help investors make more out of commodities with a range of innovative, flexible and resilient investment strategies.
From Brazil and Mexico, to Vietnam and Nigeria, the rapidly developing economies of Latin American and frontier markets, which are some of the smaller, less developed economies in the world, provides investors with a wealth of potential opportunities. Discover why BlackRock's investment trust range is well placed to help you make more of these exciting regions.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add email@example.com to your safe senders list so we don't get junked.