U.S. stocks can avoid the effects of Europe’s intensifying sovereign-debt crisis, leading ABN Amro Private Banking to remain positive on the world’s largest economy, according to Chief Investment Officer Didier Duret.
The bank that manages 164 billion euros ($217 billion) for clients cut its overall allocation to equities to an “underweight” stance on Nov. 11, taking advantage of its positive stance from the middle of August. The wealth manager has maintained its “overweight” allocation in U.S. stocks, citing the prospects for corporate profit growth and faster job creation in the country.
“The job machine is probably back in the U.S.,” Duret said in a phone interview from Amsterdam yesterday. “There is more resilience in the U.S. market from an earnings perspective. In Europe, you are seeing earnings being downgraded, but in the U.S. this is not the case.”
The Standard & Poor’s 500 Index has dropped 1.7 percent this year, making the gauge among the best performing of 24 developed markets tracked by Bloomberg News. Stock markets around the world have struggled to make any headway this year as Europe’s debt crisis spread to Italy and Spain and economic growth in the U.S. slowed.
Europe will experience a recession next year as austerity measures weaken growth, Duret said. The biggest risk to a rally in U.S. stocks is the “strong systemic risk” that the debt crisis will worsen, he said. ABN Amro Private Banking currently holds 34 percent of its balanced portfolio in equities, with 30 percent in cash, 28 percent in bonds and 8 percent in alternative investments.
European Fiscal Union
European Union leaders meeting in Brussels last week agreed to move toward fiscal union, with penalties for countries violating budgetary constraints. German Chancellor Angela Merkel and the other key euro-area leaders aim to stem the erosion of confidence in the ability of some nations to repay their debts. Stocks climbed and bonds fell after the announcement on Dec. 9.
“We don’t think we have seen the silver bullet to stabilize the situation in Europe,” Duret said. “The compact is progress, but it’s not a comprehensive solution. We remain doubtful.”
ABN also kept its “overweight” stance on equities in China, Malaysia and Indonesia.