US companies set to deliver 15% returns

Investors could enjoy returns as high as 15% or more on US equities as cash-rich firms reap the benefits of increased growth in 2014, according to a leading investment firm.

US large-cap equities may return as much as 15%, while 10% or more yields are achievable for many companies, says Joanna Shatney, of Schroder’s.

In her view, US equities are rising but are still good value for money for investors – especially when measured against the performance of bonds. She explained her prediction for returns is based on the most pessimistic forecasts for the US economy next year, which show the economy swelling by 1% to 2%.

That sort of growth, she says, translates into between 8% and 10% growth for companies – and up to 15% for large-cap corporations.

Value for money

“Stocks in large cap corporations are nowhere near as cheap as they were two years or so ago,” she shad.

“However, taken in context, the growth figures indicate double digit returns for most investors.”

Shatney also believes tapering Federal Reserve quantitative easing will push the value of bonds down and equities up, pushing investors into the stock markets and away from bonds. Another driver of shareholder returns, she explained, is the cash the companies hold on their balance sheets that should create value for investors through mergers and acquisitions and higher dividend pay outs.

Meanwhile, another Schroder’s report reveals Asia Pacific markets have performed well in 2013 but still not reached the levels of markets in more developed nations.

Asia v US markets

The overall opinion is Asia markets are keeping up with growth predictions and more investment in infrastructure and economic reforms, especially in China, will help the economies stay on track.

“The issue for investors is what sort of effect will tapering quantitative easing have on Asian markets in the short term, even though we expect to see growth sustain a health path in the long term,” said a spokesman.

He explained a deflationary environment created by tapering will keep interest rates from rising, keeping liquidity good for equities, which will support Asian shares and markets in the short term.

“We can see Asia continuing to fuel global growth, even though the level may be lower than that investors are currently experiencing.

This will grow businesses in the region. “For investors to profit in the Asian markets, they need to put their cash into good businesses that offer good returns and value for money.

Asian equities are cheaper than those in the US and the move to invest in the US will create opportunities in Asia,” he said.

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