Don’t Sweat China, Says One of Oregon’s Largest Wealth Managers
January 8, 2016
By Matthew Kish
The slowing Chinese economy is ripping through markets, but Ferguson Wellman Capital Management is telling clients not to worry too much because the U.S. economy remains strong.
The Portland-based firm, which manages more than $4.3 billion in assets, is about to hit the road and give its annual economic outlook to clients in Oregon, Washington and Idaho. It gave the Business Journal a preview Thursday.
Ferguson Wellman Chief Investment Officer George Hosfield said investors shouldn’t worry too much about the Chinese economy’s slowdown because of the strength of the U.S. economy.
“We believe the U.S. economy is on sound footing,” said Executive Vice President Brad Houle, who oversees fixed-income research. “We don’t believe there’s going to be a recession in 2016. What gives us confidence in the U.S. economy partly comes from the strength of the U.S. consumer. The U.S. consumer is 70 percent of our GDP. The consumer has not been in better shape for 20 years.”
U.S. household net worth is at a record $86 trillion, Houle said. Unemployment remains low at 5 percent and wages increased 2.5 percent in the last year.
“Personal balance sheets were never in better shape (than in 2015),” said Chief Investment Officer George Hosfield. “The individual did well.”
Houle and Hosfield noted a possibly permanent change in consumer behavior. Debt service is at 15 percent, the lowest it’s been since 1982, meaning consumers are being more careful about racking up credit card bills and taking out loans.
The savings rate has gone from negative to 5 percent. The use of home equity lines has dwindled.
“Folks are definitely living more in their means,” Houle said. “During the Great Depression you had a change in the way a generation thought about money. With the Great Recession, there’s been the same. What we think we have has been named the new, smarter consumer. The smarter consumer is saving more money.”
Because of those underlying fundamentals, the firm is urging clients not to make drastic portfolio changes in 2016. Markets were flat in 2015, with some growth stocks, like Facebook, Amazon, Netflix and Google doing well.
“Last year was a year where there was basically no return and heightened risk and very few things that works,” Hosfield said. “There’s a temptation to chase.”
The firm’s 2016 outlook includes favoring stocks over bonds and large cap stocks over emerging markets. It also favors income-producing real estate. The firm is underweight commodities, except oil.
The firm doesn’t expect the presidential election to have a material impact on markets. Dating back to 1928, the S&P has average an 11 percent return in presidential election years, roughly the same as the overall market.
“It’s going to be a media event, but a capital market event we don’t see,” Hosfield said.
Houle downplayed the impact of the Chinese economic slowdown, which spurred Wall Street selloffs in August and again this week.
“We’re not saying it doesn’t matter,” Houle said. “China is the world’s second-largest economy. But it’s not new news. It’s normal. This was going to happen.”
