1 - 7 March 2001

Investors turning to blue chip companies

by David Kelleher

A daily dose of data is confirming what doomsayers were saying long ago that the US and other global economies are decelerating quite quickly.
Companies are posting less-than-impressive results, the US Fed is causing further uncertainty in the market and little data from Europe is only sending the message that not all is rosy in this part of the world.
According to Rothschild Asset Management’s economic and market outlook for the first quarter of the year, the much-awaited slowdown in economic growth has begun in earnest although “we believe that central banks will assist in dampening the effects by starting a new easing cycle”.
RAM expects that the soft-
landing scenario is most likely with global GDP growth in 2001 of close to three per cent (four per cent last year), possibly representing sub-potential growth.
“The year-on-year oil price change will soon become negative as the 2000 increases begin to fall out of the calculation. We expect that the weaker economic climate should help restrain workers’ demands for wage increases. Accordingly, there will be little upward inflationary pressure to worry about in early 2001. Indeed, a return to deflationary concerns is entirely possible,” Rothschild says in its first quarter outlook.
With regards to investments, RAM feels that there is little hope of significant capital gains from bonds in the year ahead. Lower short-term interest rates will also reduce the attractiveness of cash as investment destination.
According to Rothschild, economic activity in Europe should remain relatively robust this year, even in the face of a slower US economy. What Europe however will not be able to escape is cuts in profits forecasts.
In fact, last week’s poor results posted by top technology companies have sent the markets further negative signals that not all is well. Investors who have pumped a lot of money into tech funds and stocks are thinking twice about their investment as share prices continued to suffer large decreases.
“Investors are worried. After surviving the sharp drop in March 2000, the last quarter of 2000 effectively killed off investors,” Mr Alex Illingworth, financial adviser with Rothschild told The Malta Business Weekly.
“Global investors are worried mainly about what is happening in the US, but with little data coming out from European countries, the same picture could be developing in Europe,” Mr Illingworth said.
With investors shying away from tech stocks or funds, the ever-
reliable blue chip stocks are now gaining strength.
“There is lots of cash on the sidelines and this money is now being invested in those areas which were neglected in favour of more lucrative equities,” he explained. “In fact, gas stocks, steel industries and other sectors are still posting growth figures of four per cent. Such growth rates are obviously attractive to the investor,” he added.
Mr Illingworth said that investors would usually base their actions on company quarterly results and yearly forecasts. “Not any more. People are no longer giving the benefit of the doubt to these results and are looking for stability,” he said.
With this in mind, Valletta Fund Management and Rothschild on Tuesday launched a new fund which invests in the world’s top 100 companies. These companies form part of the MSCI world index and have a minimum market capitalisation of US$8bn.
The Vilhena Top 100 Fund is denominated in US$ and is the third sub-fund, of the Vilhena Funds SICAV plc.
The Vilhena Top 100 Fund is, positioned to take full advantage of the growth potential of companies with real international success stories such as Microsoft Corp, Glaxosmithkleine and General Electric among others. Through this Fund, Valletta Fund Management is providing shareholders the opportunity to invest in a portfolio of a carefully blended mix of the world’s leading companies, diversified by
asset class, regional market and currencies.
“Rothschild Asset Management believe that now is an excellent time to invest. We have seen stock prices compress to levels that we now feel are justifiable. Indeed in some cases the re-rating appears to be overdone. This fund is the ideal vehicle to invest in companies of the highest quality that are best placed to benefit in this environment,” Mr Illingworth told The Malta Business Weekly.
One may invest in the Vilhena Top 100 Fund with a minimum lump sum of US$2,500, or a savings plan of US$50 per month, at a fixed price of US$1 per share.