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Legg Mason bullish on U.S. market
By George Liu
Taiwan News, Staff Reporter
2014-05-23 10:59 AM
U.S stocks have been on the rise with the S & P 500 nearing record highs and strong manufacturing boosting confidence in the global economy. Sales of previously owned homes also rose for the first time in four months after a punishing winter season.

Legg Mason, a U.S. based asset management company with NS$702 billion under management, held a press conference in Taipei recently to review current U.S. market conditions.

Tristan Camp, an investment specialist from Legg Mason’s London office, cited current skepticism in investing in the U.S. market, remarking that many investors see it as overvalued. However, he believed that there is still substantial capital waiting on the sidelines.

This view is in line with the general consensus on the U.S. market expressed by David Young, founder and chief executive officer of Anfield Capital Management LLC, “We absolutely, positively must factor in the vast amount of liquidity looking for an interesting home.”

First, the current recovery of the housing market will have a multiplicative effect on the market. Housing accounts for 5% of the U.S. economy and spurs growth in related industries such as construction and furnishings. Second, a boom in the natural gas industry due to new techniques such as hydrofracking and horizontal drilling has granted the U.S. the lowest natural gas prices in six years.

Natural gas prices in Europe and the U.K. are over twice as high and four times higher in Japan and Northeast Asia. This makes the U.S. attractive to energy intensive industries and drives investment. Third, corporate capital expenditures should start to recovery. Capacity utilization is currently at 80% which is traditionally the point where companies can no long delay new capital investment. In addition, recent confidence hurdles, gridlock in Washington D.C. and Euro risk, have been largely resolved.

Therefore, Mr. Camp sees a resumption of M & A activity and continued flow of equity from bonds back into stocks. Though historically expensive, U.S. equity valuations remain reasonable and retain upside potential.

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