Date: Mar 5, 2007 1:26 PM
Subject: Siapa takut?
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Putnam, Citigroup, UBS Unshaken by Global Rout, Say Buy Stocks
By Michael Tsang and Daniel Hauck
March 5 (Bloomberg) -- The biggest money managers and strategists on Wall
Street are standing their ground.
They say the four-year bull market in U.S. stocks will persist even after
the Standard & Poor's 500 Index plunged the most since January 2003 last
week on concern a slowing economy will hurt corporate profits.
Putnam Investments, which oversees one of the best- performing U.S. equity
funds, and BlackRock Inc., the second- largest publicly traded U.S. money
manager, say stocks are cheap. Citigroup Inc. and UBS AG are telling
investors to add to their U.S. holdings. All 15 strategists tracked by
Bloomberg were sticking with their forecasts as of March 2. The S&P 500 lost
1.1 percent that day, bringing its weekly decline to 4.4 percent.
``We're more favorably disposed to the U.S. market than we were at the end
of last year,'' said Kevin Cronin, who oversees $192 billion as head of
investments at Boston-based Putnam. The selloff has been a ``bit
overblown.''
The strategists surveyed by Bloomberg predict, on average, a 12 percent
increase for the S&P 500 within a year.
Following last week's decline, members in the index trade at an average 15
times forecast earnings, 45 percent less than the monthly average of
27.3times over the past 10 years.
U.S. technology stocks, consumer-related companies and homebuilders have
become ``more attractive,'' Cronin said, and he is looking to add to his
firm's positions. The $4.11 billion Putnam Investors Fund has outperformed
92 percent of its rivals during the past five years, according to data from
Bloomberg.
Private Equity
Private-equity investors, who have an estimated $1.6 trillion to spend this
year, may also help stocks to rebound from losses, BlackRock's Robert Doll
and David Bianco at UBS said.
London-based Dresdner Kleinwort, the top-ranked global equity strategy team
in Thomson Extel's surveys the past three years, doesn't share Wall Street's
optimism. The investment- banking arm of Dresdner Bank AG said last week
that investors should cut stock holdings and buy government bonds because
the retreat is not over.
The worldwide selloff has already wiped out more than $800 billion from the
U.S. stock market since the rout started on Feb. 27. Figures last week
showed U.S. new-home sales fell in January by the most in 13 years, while
the economy expanded less than initially estimated in the fourth quarter of
2006. Mortgage defaults are climbing by the most since 2000.
Analysts have cut first-quarter earnings projections by half since the start
of 2007, according to data compiled by Bloomberg. More U.S. companies fell
short of profit estimates last quarter than at any other time this decade.
Greenspan's Recession
Alan Greenspan, former chairman of the Federal Reserve, weighed in last week
by saying profit margins at U.S. companies are peaking and the growth cycle
is in a mature phase. He also said a recession in the U.S., while unlikely,
is possible.
Robert Doll, who manages $1.1 trillion as chief investment officer of global
equities at BlackRock in New York, said he expects global economic growth to
remain strong enough this year to support a 12 percent rally in the S&P 500
to a record 1549.
``This isn't going to lead to a major bear market,'' said Doll. ``Out of
this will come some better buying opportunities.'' Investors should shift
out of riskier areas such as emerging markets and ``slowly add'' to holdings
of the biggest energy and technology companies, he said.
Doll cited Microsoft Corp., the world's largest software maker,
International Business Machines Corp., the biggest computer-services
company, and Cisco Systems Inc., the biggest maker of Internet routing gear.
The $3.81 billion BlackRock Large Cap Core Fund has outperformed 95 percent
of its peers during the past five years.
Global Stampede
The past week's rout started in China. Mainland stocks, which have more than
doubled in the past 12 months, swooned after the government set up a task
force to clamp down on illegal share offerings and investments with borrowed
money.
Sparked by a 9.2 percent plunge in the Shanghai and Shenzhen 300 Index on
Feb. 27, the selloff rippled through Asia and Europe and pushed down the Dow
Jones Industrial Average as much as 546.20 points.
``The idea of separating the rest of the world from the U.S., as might have
been the case once upon a time, will be increasingly rare,'' said Michael
Steinhardt, whose hedge funds posted annual returns of more than 20 percent
for almost three decades. ``We've seen the bulk of the rise, and the bulk of
the bull market,'' according to the former managing partner of New
York-based Steinhardt Management Co.
One-Day Slump
The Dow's drop was the steepest since the first trading day after the Sept.
11 terrorist attacks. The 30-stock average ended Feb. 27 with a 3.3 percent
decline and the S&P 500 sank 3.5 percent, the biggest losses since March
2003. The Chicago Board Options Exchange's SPX Volatility Index, a gauge of
investor concern known as the VIX, jumped by the most ever.
The Morgan Stanley Capital International Emerging Markets Index last week
lost 6.7 percent, the biggest weekly drop since the period ended June 6. The
MSCI World Index tumbled 4.5 percent, the worst weekly retreat since
September 2002.
``Every once in a while, people get cold feet and decide to sell and it's
like a stampede of buffalo: You fire the rifle and they all go running,''
said John Carey, who manages about $12 billion at Pioneer Investment
Management in Boston.
For investors who thought ``stocks were a good buy at the beginning of the
year, they have another shot,'' he said.
U.S. shares were the first to rebound from the global slump after Citigroup
Investment Research's Tobias Levkovich and UBS's Bianco said investors
should use the pullback as an opportunity to add to their U.S.
shareholdings.
`We're Buyers'
A group of 15 strategists surveyed by Bloomberg all expect U.S. stocks to
advance this year, with an average year-end or 12- month prediction of 1549
for the S&P 500. The index ended last week at 1387.17.
The last time all the firms tracked agreed that U.S. stocks would post a
full-year rally was for 2001. The S&P 500 dropped 13 percent that year.
``We're buyers,'' Levkovich, Citigroup's chief U.S. equity strategist, said
in an interview from New York. ``Nothing's changed. We'd be taking advantage
of this.''
Since 1962, the S&P 500 had a median gain of 7.5 percent in the 60 trading
days that followed a one-day drop of 3 percent or more, according to New
York-based Citigroup, the biggest U.S. financial-services company. Investors
should be ``aggressive buyers'' of retailers, telecommunications companies
and semiconductor makers, Levkovich wrote. He expects the S&P 500 to surge
15 percent from last week's close by the end of this year.
Takeover Demand
Share declines may help spur takeovers by private-equity investors,
according to UBS's Bianco. Buyout firms have $1.6 trillion to spend, Morgan
Stanley estimates, and have announced almost $50 billion so far in takeovers
this year, data compiled by Bloomberg showed. In 2006, there was a record of
more than $700 billion in private-equity deals.
``There's a lot of value here for anyone that's willing to exploit this,''
Bianco said. ``It's not just theoretical, we see plenty of that activity
going on with private equity.''
Buyouts are a ``good sign of a backstop on this market,'' according to the
New York-based strategist.
Bianco, who estimates the S&P 500 will climb 8.1 percent by year-end, also
said the slide in developing markets may spur money back into U.S. equities.
The percentage of mutual-fund assets invested in U.S. stocks fell to 78
percent last year, the lowest since at least 1984, based on calculations by
Bloomberg of data compiled by the Investment Company Institute, a trade
group in Washington.
Fund Flows
U.S. investors have piled into international funds and shunned those
investing in local stocks, as the MSCI Emerging Markets Index outperformed
the S&P 500 for the past six years.
Emerging-market stock funds garnered a record $22.4 billion of inflows last
year, eclipsing the prior year's high, according to Emerging Portfolio Fund
Research in Boston. China stock funds accounted for half the net inflows
into emerging markets.
Bianco recommends buying shares of New York-based Coach Inc., the biggest
U.S. maker of luxury goods, and San Jose, California-based Cisco. Shares of
Coach fell 4.6 percent last week. Cisco dropped 8 percent.
U.S. economic indicators suggest the shift back to U.S. assets may not
materialize. The U.S. gross domestic product last quarter rose at a
2.2percent annual rate, the Commerce Department said Feb. 28, as
manufacturers
reduced stockpiles. That compares with a 3.5 percent pace reported on Jan.
31.
The U.S. housing market is also deteriorating. New home sales in January
fell 16.6 percent to an annual rate of 937,000, less than any economist had
forecast in a Bloomberg survey.
Mortgage Spillover?
Capital Growth Management LP founder Kenneth Heebner, manager of the
top-performing U.S. real-estate fund in the past decade, said last week the
damage to the housing market and economy from defaults of higher-risk
mortgages will worsen.
Delinquencies and defaults on subprime mortgages, or home loans made to
people with limited credit records or higher debts, are at the highest in at
least seven years, a Feb. 22 report by Barclays Capital showed. At least 20
U.S. subprime lenders have closed, scaled back or been sold in the past five
months.
The deterioration in the subprime loan business may be a blow to the
earnings of banks and other financial companies.
New York-based Merrill Lynch & Co. predicted last week that earnings for
Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Bear Stearns Cos.,
Deutsche Bank AG and Credit Suisse Group will decline starting next quarter
as the mortgage market weakens and the appetite among investors for risk
declines.
`Too Soon'
``To think of buying today is too soon,'' James Swanson, chief investment
strategist at MFS Investment Management, which oversees $180 billion in
assets, said from Telluride, Colorado. ``The risk has not been eliminated
from this market. We have the subprime risk, the aging business cycle
risk.'' Swanson said the global selloff could last as long as two months.
Dresdner Kleinwort last week shifted its asset allocation to ``more
aggressively underweight'' equities, and predicted ``an imminent shakeout of
at least 10 percent.'' Dresdner has had a ``structural underweight'' in
stocks since October 1996 relative to bonds and said last July that the S&P
500 may tumble as much as 40 percent in the event of a recession.
Analysts tracked by Bloomberg have already slashed their average earnings
growth estimates for S&P 500 companies to 3.5 percent this quarter from 7
percent at the start of 2007.
Last quarter, 26 percent of all S&P 500 companies failed to meet analysts'
profit estimates, according to data compiled by Bloomberg. That's the
highest since the third quarter of 1998, when 28 percent didn't measure up
to expectations.
Current Fed Chairman Ben S. Bernanke still sides with the bulls on the
economy, telling Congress last week that the central bank expects the
economy to pick up later this year.
``We still have good corporate and economic growth,'' said Brendan
Connaughton, who helps oversee $46 billion at Deutsche Bank Private Wealth
Management in San Francisco. Because of the selloff, ``everything I wanted
to buy is now on sale.''
To contact the reporters on this story: Michael Tsang in New York at
[EMAIL PROTECTED] ; Daniel Hauck in New York at [EMAIL PROTECTED] .
*Last Updated: March 4, 2007 19:06 EST*
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