Joanna Shatney, Schroder head of US large cap equities, looks ahead into 2012
US companies should provide modest earnings growth even in a difficult macro backdrop. Our base case reflects modest revenue and margin expansion, but if economic growth proves more challenging, we expect capital redeployment to protect total return.
Valuations are low relative to history – other developed markets might be cheaper, but carry higher risk and companies have fewer levers to pull if economic challenges worsen.
Instead of just focusing on macro events, we are hopeful that fundamentals will prove strong enough to break the correlation story of 2011.
Relative to other developed markets the US is well-positioned for moderate GDP growth and has longer-term competitive advantages.
US companies are well-positioned to drive earnings growth against a backdrop of uncertainty in 2012, as they achieve revenue growth above GDP, with room for margin expansion.
Additionally, capital redeployment can serve as a backstop for returns if the macro headwinds prove more negative than we currently forecast.
Over the longer term, we believe the US can deliver higher equity returns than other developed markets as a result of its corporate strengths – as well as three positive secular themes: innovation, increased competitive advantage, and population growth.