Watch out Europe, the Americans are coming
With US equities flavour of the month, confident American managers are looking to gain a greater share of European assets
Not content with having killed off the secrecy-led Swiss banking model, the US tax authorities are continuing to flex their global muscles with implementation of aggressive new regulations aimed at foreign banks potentially doing business with US nationals. At the same time, banks active in developing countries are being forced to settle following US accusations of sanctions-busting.
Conspiracy theorists are already claiming this push against European and emerging market banks further underlines the protectionist nature of US authorities.
But evidence is emerging of a parallel move from US companies, banks and fund houses, who could be losing their reputation as the Big Bad Wolves of the financial world.
Funds distribution staff at UBS, an institution which the US authorities have certainly done no favours towards, speak effusively about the new way of doing business in the US. The world’s top polluters have cleaned up their act, manufacturers have taken seriously promises not to employ child labour and once Asian-centric innovation, particularly in internet-related ventures, is reaching a gradual crescendo stateside.
Despite concerns about US markets not reflecting underlying problems in the economy, indices tend to do well in election years, earnings remain relatively attractive and competitiveness against China appears to be improving.
All of these factors, combined with the sovereign debt problems in Europe and fears of a Chinese slowdown, have led to a resurgence in sales of US equity product across Europe’s private banking heartlands. This has encouraged previously domestic-focused US managers such as Wells Fargo to vastly increase resources allocated to Europe, with plans to double a $440bn (€353bn) asset base over the next seven years.
They are confident of victory in a battle for assets with established firms who appear to be losing their way due to stagnant business models, hindered by an over-industrialised and inflexible manufacturing process.
In tandem with these trends, those US private banks with a global audience are further centralising investment decision-making in New York. With the one-bank model pioneered by Citigroup and then followed by the Swiss fast becoming the orthodoxy in the investment world, there is less room for regional variation.
This means HQ needs to be constantly spinning out new investment stories to tempt institutions and private clients away from loss-making money market and bond funds into selected equity products, which make the real margins for providers.
CIOs such as Leo Grohowski at BNY Mellon struggle with a palpable level of cynicism among private clients, fuelled by negative newsflow about financial institutions. His hardest task is to engage clients into thinking along a 12-18 month horizon, instead of a few weeks down the line. Cash can be a dangerous asset to be in, believe wealth managers, who continue to develop a series of themes which play well in client meetings.
At JP Morgan, these can include investing in high dividend-paying stocks and the increasingly popular concept of energy independence. But this thematic investment framework has not always worked. Along with other banks, JP Morgan recommended clients should bet on the structural decline of the US dollar against emerging market currencies. So far, this has not happened.
What was once seen as the Asian investor mentality of waiting in the shadows, with a packet of cash, for the next story to unravel, appears to be fast taking root in Europe and the US. Yet there is no substitute for a long-term, strategic asset allocation. US equities appear to have secured their place in that structure for some time to come.
