Beware BRIC, concentrate on CASSH

As acronyms go, it may not have quite the jingle first associated with Jim O’Neill’s now-overworked “BRIC” tag, but Blackrock strategist Russ Koesterich is hoping the idea behind “CASSH” countries — Canada, Australia, Singapore, Switzerland, and Hong Kong — may be just as appealing.

He is warning that investors risk throwing good opportunities out with the bad ones by ditching all developed markets without differentiating carefully between them.

While there is broad agreement that most mature markets are stuck in a slow growth regime defined by excessive debt, structural deficits, high unemployment, and deteriorating demographics, the CASSH economies are fundamentally stronger, being less burdened by debt and structural deficits, and with better growth prospects.

“These countries should, on average, grow faster than their larger peers. While this in itself does not guarantee outperformance, faster economic growth has historically correlated with faster earnings growth,” notes Koesterich, the iShares Global Chief Investment Strategist at BlackRock.

“These countries do not suffer from the same fiscal imbalances as the United States, Europe, and Japan. While they will be impacted by systemic risk along with the rest of the global economy, their idiosyncratic risk is lower, and should be rewarded with a lower discount rate and higher multiple. They all have profitable corporate sectors which are capable of competing on a global stage.”

He says an overweight to these smaller, developed markets may also be justified on the basis of their currencies, since imbalances in many of the developed countries may ultimately feed through to long-term depreciation of the dollar, euro, and yen. “While CASSH countries have their own challenges, over the long term we believe that the catalyst for a future crisis is more likely to come from the United States, Europe, or Japan.”

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