The manager of the PSigma American growth fund believes unprecedented corporate restructuring and downsizing coupled with the massive liquidity provided by the Federal Reserve will result in a hugely bullish environment for US stocks this year.
He says: “We’re witnessing the quickest and deepest restructuring in corporate America that we’ve ever seen. When you combine this reduction in supply with an improving consumer and industrial demand from the Fed’s liquidity stimuli, we see a turnaround in corporate profits in 2010 that the stock market will begin to discount this year.”
“One of the additional reasons for my optimism is that the years when the US stock market is up over 20 per cent normally followed those really horrific years where the US stock market was down in excess of 20 per cent.”
Abate says the current recession will be long and will last two years for the US but says the stock market will lead the economy with a 2010 economic/profits turnaround consistent with the fund’s market view for this year.
The American growth fund is “dramatically underweight” in banks and insurers, with less than 5 per cent held and instead favours “cyclical restructuring stocks”, those that are undergoing company-specific restructuring efforts.
He says: “We continue to increase our exposure to cyclical restructuring stocks, the area of most excitement right now and which now represents about one-third of the fund.”