The U.S. economy will avoid its second recession in three years, helping global stock markets recover losses in the second half of 2010, according to RCM Asia Pacific Ltd.
Investors will regain an appetite for risk in the third quarter, said Mark Konyn, chief executive officer of RCM Asia Pacific, which oversees more than $12 billion. Institutional funds are building up cash that will be spent on equities, he said.
The MSCI World Index has gained 5.1 percent since June 30, rebounding from an 11 percent loss in the first half of the year as European budget deficits and China’s steps to curb asset bubbles threatened to derail the global recovery. Speculation the U.S. economy will contract intensified as reports pointed to a retreat in manufacturing and home sales.
“There are challenges along the road, and growth will be subdued,” Konyn told reporters in Hong Kong yesterday. “Corporate earnings growth is buoyant, low interest rates will remain. We are confident that the U.S. can avoid a double dip.”
Of the 54 companies in the Standard & Poor’s 500 Index that have reported results from July 12, all but 10 beat earnings- per-share forecasts, according to Bloomberg data. Growth in U.S. gross domestic product is forecast to average 3 percent through 2012, according to economists surveyed by Bloomberg.
“In the second half of the year, we’ll see better performance in the equity market,” Konyn said. “There’s a good chance investors will recover their losses, and end the year in the positive territory.”
Konyn’s views echo those of Robert Doll, vice chairman of BlackRock Inc., the world’s largest asset manager, who told Bloomberg Television this week that a recession was unlikely.
The RCM Hong Kong Fund has gained 112 percent in the past five years as of May 31, based on the fund’s latest factsheet. That beat the 67 percent advance in its benchmark FTSE Mandatory Provident Fund Hong Kong Index in the same period. RCM is a unit of Allianz Global Investors.
Konyn, who has been based in Hong Kong since 1989, was the head of institutional business development for Fidelity Investments in Hong Kong before joining RCM in 1997. He is a fellow of the Royal Statistical Society, and was previously a committee member of the FTSE Index Asia Pacific.
RCM favors Hong Kong and Chinese banks because of a lower risk of non-performing loans over U.S. and European financial shares, according to Konyn.
Chinese government measures to curb increases in property prices have raised concerns over the strength of the world’s third-largest economy. Growth slowed to 10.3 percent in the second quarter, from 11.9 percent the previous three months, the country’s statistics bureau reported on July 15.
The Shanghai Composite Index has fallen 23 percent this year, following an 80 percent rally in 2009. Hong Kong’s Hang Seng China Enterprises Index has declined 9.3 percent after gaining 62 percent in 2009.
Konyn predicted in January that concerns over banking reforms in the U.S. and China’s tightening measures could lead to a long “correction” in Hong Kong and Chinese equities.
Underlying demand has led him to believe that China’s property market will have a “soft landing,” Konyn said. New home sales in Shanghai climbed 33 percent in the week ended July 18 from the previous week, according to figures from Shanghai Uwin Real Estate Information Services Co.
“All signs are there and if China’s economy can sustain growth, there’ll be a potential of reallocation into Chinese equities as we move into 2011,” Konyn said.