Positive Surprises Likely for Earnings: Fund Manager
Financial markets are on the rise, defying geopolitical threats as investors take their cue from a healthy long-term economic outlook, and earnings for the first quarter are likely to show positive surprises, Michael Browne, Fund Manager at Martin Currie said Monday.
“I can’t get concerned looking out to the 12-month perspective, although in the short term it’s perfectly possible for there to be some quietness in the markets,” Browne told CNBC.
Industrial orders are likely to keep growing, albeit at lower levels than those witnessed in the past 18-20 months, said Browne, who expects strong earnings to boost markets as well.
“You can’t keep growing industrial orders by between 17 and 25 percent month after month, year after year as we have done in Europe for the last 18-20 odd months,” he said. “However it is going to continue growing between 6 and 10 percent based on what I can see and based on what I can see from the business surveys.”
“I would not be at all surprised if the first quarter results en masse surprised to the upside. Sure there will be some disappointments but …in particular some of the banking sector will see good results which will exceed expectations,” he said.
Browne pointed out that we had yet to see what the Japanese response will be to the disaster that struck the country earlier this month, and warned that could offset gains somewhat.
The impact of the earthquake and tsunami would not however pose a serious threat, judging by the response seen in the credit and foreign exchange markets, he said.
“We are probably within two to three months of seeing a rate rise from the Europeans at the present moment in time. The normal behavior of markets is to be flat into that for three months prior and the three months post. After that period, markets then start to re-accelerate again, because the fundamentals are good, which is what is driving interest rate increases,” he said.
Browne said a potential default on Japanese government debt in the wake of the crisis was a real prospect, but credit markets “ignored it completely” because they thought it was a “zero-risk issue”.
“Credit markets who have been right for the last 12 years, said this was not an issue,” he said.
The credit market was open for business, and did not reflect concerns over events in Japan or the Middle East, he said.
“What we see in the credit markets is something we haven’t seen in the last three years…and that is that the overall level of corporate paper outstanding is rising, the rates they are paying on that of course have been falling and continue to come in,” Browne said.
As a result, a lot of mergers and acquisitions were coming though, he said.