It's not every year that a big-name global investment strategist like Merrill Lynch's Tom Robinson tells investors to keep more of their money at home.
But the former George Washington University economics professor, who was in Baltimore yesterday meeting with clients, says 1995 is shaping up as an unusual year.
Mr. Robinson says this year could be one of those rare years when U.S. stocks outperform foreign equities, even in many of the high-growth emerging markets that have been Wall Street's recent flavors-of-the month. He said the market for U.S. stocks has been among the world's top four markets only five times in the past 25 years, but he expects that record to improve.
"Right now U.S. equity markets are poised for a very good year," said Mr. Robinson, who was in town to meet institutional clients during the day and address a meeting of smaller Merrill clients last night. "This represents a unique opportunity, really."
Normally, he said Merrill Lynch urges clients to keep between 15 percent and 25 percent of their investments in foreign assets, mostly stocks.
Mr. Robinson, Merrill's chief global investment strategist, said he's urging the low end of the range because his company believes the climb in U.S. interest rates is nearly over; because economic growth is likely to slow, pushing consumer inflation only slightly higher than last year's 2.7 percent rate; and because U.S. stocks are poised for a rally after a bearish 1994.
He said nearly half of all New York Stock Exchange shares worth more than $5 at their recent peaks lost 30 percent or more of their value last year. More than 80 percent lost 20 percent of their value.
"Last year, even though the market was flat [as measured by the Dow Jones industrial average], it was extremely hard to make money," he said, pointing also to sharp declines in bond prices after the Federal Reserve began pushing interest rates higher. "If you had a flat year, you should declare victory. . . . Cash was really the king."
But Mr. Robinson declined to predict what would happen to major market averages such as the Dow industrials. "The number is likely to be less interesting than what we see in individual stocks," he said, saying Merrill currently likes cyclical, technology and small-capitalization issues best, focusing on cyclicals because they were beaten up in 1994.
For the dollars clients do invest abroad, Mr. Robinson says half should be kept in the Japanese market. He said Japan's market should make up at least some of its huge losses in recent years as a result of up to a 35 percent improvement in corporate earnings made possible by painful restructurings at Japanese companies.
He is pickier about Europe and the Third World, in particular saying that there's no need for bargain-hunting investors to rush back into Mexico anytime soon to scoop up stocks whose value fell an average of 40 percent because of the recent collapse of the peso.
He explained that most of the plunge in Mexican stocks after the government's decision Dec. 20 to devalue the Mexican currency reflected the 30 percent loss in the peso's value vs. the dollar. PTC Mexican stock prices fell much less when measured in pesos.
"I don't know that I would sell" Mexican stocks, Mr. Robinson said. "We've already had a pretty good hit. You've got to have a two- or three- or five-year time horizon."