US - Sweeping Republican gains in both the Senate and House of Representatives will boost US equity returns next year, fund managers forecast.
The asset class has performed poorly since the end of the technology boom with returns hit by fears over recession, falling consumer confidence, rising job losses, increasing tensions over Iraq and doubts over the reliability of corporate statements.
But fund managers believe the Republican Party’s success in taking control of both the House of Representatives and the Senate will enable the creation of a more favourable tax and regulatory environment for business.
This, combined with the Federal Reserves' decision to cut interest rates, will boost US equity performance next year, they say.
Standard Life Investments global investment strategist Ken Forman said: “With everything controlled by the Republicans, it makes it easier for Bush’s proposals.
“We moved back to a heavy position in US equities a month or so ago, and the Republicans’ win just reinforces our view that they should outperform.”
Insight Investments director of US equities James McLellan added: “The combination of the Federal Reserves' interest rate cut and the Republicans’ mid-term win should help underpin the economy.
“The outlook is stable, and we are still bumping along the bottom, with the potential for things to pick up next year.”
But Barclays Global Investors chief economist Haydn Davies said that while profits would recover next year, he discounted the effect of the election results on US markets.
He said that all the factors for a US recovery – such as the fact that 219 out of the 360 companies that reported third quarter earnings figures, have beaten expectations – are already in place.
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