The FINANCIAL — A resurgence of American innovation, a slow yet steady shift into equities and away from bonds, and rising levels of wealth in emerging markets are reshaping the United States, world economies and financial markets, according to “A Transforming World,” a report and webcast from top thought-leaders in BofA Merrill Lynch Global Research, Merrill Lynch Wealth Management, and U.S.
“This analysis reflects the insights we gain through the power of our global connections,” said Brian Moynihan, Bank of America Chief Executive Officer. "It is clear from the way that financial markets and economies are linked that investors have to consider both opportunities and risks. In this report, our experts help sort through those,” Moynihan added.
“A Transforming World” identifies three themes underlying the changes underway: a resurgence of business and technology innovation in the U.S. that has the potential to revitalize the economy; shifts in the financial markets away from fixed income and towards equities; and a rebalancing of the world’s economic, political and social power towards emerging markets.
U.S. citizens and corporations still receive more patents than those of any other country in the world, and the U.S. invests more in R&D than China, Japan, South Korea and Taiwan combined, generating technologies such as digitalization, cloud computing, custom manufacturing and quick time-to-market design, according to the study.
After nearly 70 years of growing dependence on imported energy, new technologies that enable oil and gas to be extracted from shale rock have enabled the U.S. to move from being the world’s largest importer of petroleum products to the second-largest exporter in just five years.
Labor costs have dropped during the recession and the ensuing sluggish recovery, enabling companies to increase profitability. American manufacturers, in particular, have once again become competitive globally, the study shows.
“In a transforming world, the growth backdrop is changing,” said Candace Browning, head of BofA Merrill Lynch Global Research. “For decades, the U.S. consumer drove global growth, and the U.S. imported both raw materials and finished goods. Now, the new middle classes in emerging markets are stepping up, and the U.S. soon will become a net exporter of energy even as a revival of manufacturing gets underway. It’s an upside-down world, with imbalances everywhere and that translates into opportunity for the global investor,” Browning added.
Risk-aversion has kept investors overweight in cash and conservative, bond-heavy allocations since the financial crisis. However, low inflation and low interest rates are fueling a surge toward equities as investors seek yield, according to the Bank of America Corporation.
“What we’re seeing in the financial markets is a return to normal as investors shift from the defensive, post-traumatic stress environment that characterized the markets after the financial crisis,” said Merrill Lynch, Chief Investment Officer of Portfolio Strategy Mary Ann Bartels. “Today, investors increasingly are seeking growth, and that’s reflected in the flows back into the equity markets. In a sense, the ‘new normal’ is really the ‘old normal,’” Lynch added.
“In this transforming world, the U.S. consumer will no longer be the chief driver of economic growth,” said Merrill Lynch Private Banking and Investment Group Chief Investment Officer Chris Wolfe. “Growth opportunities are likely to be more global. The economic activity generated by emerging markets won’t be confined within their borders; consumers in China, Russia and elsewhere already are buying property, goods and services in North America and Europe, generating growth. Smart investors will look to see who benefits from growth, not just where it occurs,” Lynch added.
“The themes of a revival of U.S. innovation, shifts in the financial markets and global realignment all have different implications, so no single investing strategy can enable investors to maximize opportunities,” said Chris Hyzy, U.S. Trust Chief Investment Officer . “However, investors have a greater range of choices than ever before for addressing investment themes and ideas. They need to consider a wide range of asset classes, develop a global perspective and rebalance more frequently to stay ahead of the curve,” Hyzy added.
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