Forget Doom, Old-Fashioned Rally Coming: Fund Manager
There is too much pessimism in the markets and an old-fashioned rally may be on the cards as there are signals the economy is improving, Michael Browne, fund manager at Martin Currie, told CNBC.
"Risk aversion is the new black and the professors and black swans are falling over themselves to predict the collapse of a debt-laden economy," Browne told CNBC.
But results from the banks indicate that things are getting better, he said.
"Almost all come up with the same pattern…they are lending again to small and mid-sized corporations and would like to lend more but there is no demand, especially from large corporations who are funding themselves from a very cheap market," according to Browne.
"Individual lending is also showing signs of life. So if on top of this you get the consistent pattern of falling provisions then they are telling me that the economy is recovering. Rather faster than we should have expected," he added.
The European economy is getting stronger, said Browne, who dismissed claims this will only last until another slowdown in China and the US.
"The post re-stocking dip seems to have been obliterated. And the same message is coming from pretty much everywhere. The job creation rate is quite impressive, especially from Germany," he said.
Spending that Cash
Browne believes firms are cash rich and looking for ways to spend it.
"There is money in the kitty and each board will face the question in September of 'what to do with it? Do we buy companies, invest in new plant and people or return it to shareholders.' Well, expect all three," he said.
He also dismissed fears that bad credit is holding back the economy and that austerity measures will choke growth.
"Will it all end in tears? Not if you look at the detail…the fiscal plans are frankly all about trying to hold government spending flat in absolute terms while nominal GDP rises and the tax take then rises," Browne said.
"If credit improves and allows the recovery to be recognized then there is significant potential for a major equity rally: risk premiums are at all-time highs in Europe and if we are right, the earnings estimates for 2011 are too low," he added.
"We are net long 66 percent and are about to take on some leverage……just like we were in 2004 and this year is just like 2004,"Browne said.