The following are Sit Investment Associates’ monthly domestic and quarterly international outlook and strategy summaries. These summaries contain the collective opinions of our analysts and portfolio managers and are provided for informational purposes only. At the end of each calendar quarter, copies of the full domestic and international publications are available. While the information is accurate at the time of writing, such information is subject to change at any time without notice, and therefore, so may the investment decisions of Sit Investment Associates.
Domestic Outlook and Strategy
July 9 , 2010
After a solid start to the year, domestic equity markets retrenched again in June following weaker performance in May. For the entire second quarter, major domestic equity indices declined in the neighborhood of -10 percent while fixed income securities rallied as investors turned defensive. Regarding the U.S. economy, the final estimate of first quarter U.S. real GDP growth was revised down to +2.7 percent from the previous estimate of +3.0 percent. Despite renewed concerns, on the part of some investors, that the U.S. economy is headed for greater weakness, we expect the recovery to continue at the same subpar pace we have been forecasting. In taxable fixed income portfolios, we are underweighted in U.S. Treasuries and we continue to maintain relatively short durations, as we believe that current U.S. Treasury yields are too low when considering the market’s fear of another crisis and the positive underlying fundamental trends in the U.S. economy. Municipal portfolios are positioned at or longer than their respective benchmarks because of the attractive yields relative to Treasuries. Sit Investment Associates’ domestic equity portfolios continue to emphasize the traditional growth sectors of healthcare and technology, as well as energy. In this month’s equity strategy section, we highlight the producer manufacturing sector, which is also significantly weighted.
For a complete copy of the latest quarterly summary, click here: Domestic Outlook and Investment Strategy (Adobe Acrobat) or e-mail us at: siainfo@sitinvest.com.
International Outlook and Strategy
July 9 , 2010
We are maintaining our cautiously optimistic 2010 global GDP forecast of +3.0 percent, but are well aware the global economy appears to be slowing from its more robust pace in the first half of this year. For 2011, our global GDP growth estimate is +2.7 percent. The impact of nations’ fiscal and monetary stimulus helped the global economy recover in 2009 and in the first of half of 2010, however, as fiscal stimulus measures are withdrawn and, in some countries, austerity measures are implemented, we expect a slower growth environment. Even though factories, globally, are increasing production and replenishing inventories, the world economy still faces risks from the effects of the global credit crunch, the withdrawal of extraordinary government supports, and restrained demand caused by high unemployment. We believe the debt crisis in Europe heightened these risks and has been a major factor in the current global growth slowdown. In the U.S., we anticipate +2.8 percent 2010 GDP growth. We believe growth will likely remain between +2.5 percent and +3.0 percent in 2011 as the economic improvement we are experiencing in the U.S. is impacted by the stimulus withdrawals, heightened unemployment levels, and tax increases. Last quarter we were hopeful 2010 European GDP growth would exceed our +1.5 percent estimate, however, we no longer believe that to be the case. We are now estimating euro area growth of +1.2 percent for 2010 and +1.0 percent in 2011 as austerity measures take hold. Some export-dominant countries, such as Germany, will hold up better as the weak euro should help drive stronger exports. While the UK is far from stable, we believe GDP will likely be stronger and are estimating growth of +1.5 percent for 2010 and 2011. In emerging Europe, our 2010 and 2011 GDP estimates should be at least +3.0 percent given stronger consumption trends. In Japan, our 2010 GDP forecast is now +2.0 percent as export growth in the first half of 2010 gave the economy a boost. In 2011, we anticipate modest slowing with growth of +1.0 percent, as a stronger yen will likely hurt the export-oriented companies, consumption will remain poor, and deflation takes hold. In Asia ex-Japan, we expect growth to remain strong at +8.0 percent in 2010, albeit slowing to +7.5 percent in 2011. We expect China’s 2010 GDP growth to be +9.5 percent and to modestly slow to +9.0 percent next year, as the government gradually exits its stimulus policy, property tightening measures linger, and the shift toward a consumption-driven economy continues. See Exhibit A for our global economic forecasts. Our forecast for a modest slowdown is supported by Exhibits B and C, which illustrate that manufacturing is cooling off and OECD Composite Leading Indicators are losing momentum.
For a complete copy of the latest quarterly summary, click here: International Outlook & Strategy Summary (Adobe Acrobat) or e-mail us at: siainfo@sitinvest.com.
