A star-sprangled future for the US? TBCAM’s Saffaye responds
George C. Saffaye, portfolio strategist at The Boston Company Asset Management (TBCAM) and a member of the team managing the BNY Mellon American Fund, discusses why he’s optimistic about the US economy for 2014.
“There’s no denying our optimism with regards the US economy,” says Saffaye. “As far as we are concerned, the key factor is inflation which, if kept at bay, can provide a strong foundation across several aspects of the economy. There are four drivers of this: a slower rate of growth in China, which has in turn slowed the progress of commodity prices; the impact of ‘Abenomics’ in Japan, because as the Japanese yen devalues, the US dollar is bolstered; the US energy renaissance, which is benefiting both companies and the consumer (and acting in the same way as a tax break); and more stable government policy,” he explains.
Following the ‘11th hour’ avoidance of US debt ceiling and the US Federal Reserve’s delay on ‘tapering’, we expect the US equity market to be a bright spot among global economies in 2014,” says Saffaye. “Within the US, crude-oil production continues to surge and oil futures have declined sharply, largely because of the country’s vast shale reserves and easing tensions in the Middle East. What’s more,” he adds, “with around 80% of US trade deficit energy-related, the oil and gas re-awakening should bode well for improving the country’s fiscal stability.
“Meanwhile, inflation remains low in the US as China’s economic growth has slowed, leaving commodity prices at their lowest levels in three years. As consumers find more money in their pockets due to lower inflation and energy costs, as well as stronger confidence because of an improving housing market and employment situation, we expect a fillip for the American economy,” says Saffaye.
At the sector level, Saffaye and his team have found success within the technology space. “We favour companies in the social-media space as they continue to monetise within mobile. However, on the flip side, we are happy not to hold certain tech stalwarts, some of which have been unable to produce new categories of products that are as innovative as in the past. Furthermore, with increased competition, such companies could also face eroding margins,” he says.
“Elsewhere, within the US healthcare sector we are encouraged by the amount of innovation we are seeing, along with a greater willingness by larger pharmaceutical companies to engage in M&A activity.” He continues: “There is also a raft of new drugs coming through the pipeline – particularly those that aim to treat cancer – which could be ground-breaking.
“More broadly, while US corporates remain conservative when it comes to capital spending and investment, against the backdrop of more stable government policy we expect 2014 to be a year in which companies take advantage and invest in themselves. This is essential; in order to contribute to economic growth, companies must first become structured for growth. Expect US capital expenditure to return to the fore in 2014,” concludes Saffaye.