Credit Suisse analysts led by London-based Andrew Garthwaite said that although financial pressures on the subprime borrower will intensify and the related fallout may last longer than in 1998, investment banks are now better capitalized and risks are more widely dispersed.
According to Garthwaite’s team, “Corporate America is in far better shape than it was in 1998, as is the global economy and equity valuations are much cheaper relative to alternative assets. “We believe it is right to stick to our overweight despite the heightened market volatility of recent weeks.”
The Standard & Poor's 500 Index has lost 8.1 percent since this year's high on July 19 on concern losses tied to U.S. subprime, or higher risk, home loans will fuel a credit crunch, damp spending and slow economic growth. The rout has wiped more than $3.3 trillion off the value of stocks worldwide.
Credit Suisse's Garthwaite is the third-highest ranked individual strategist in this year's Thomson Extel survey of investors. The brokerage, which had been bearish on U.S. stocks for the past seven years, recommended last week that investors increase their allocations from 36.8 percent to 46.8 percent in U.S. shares as a portion of their global equity holdings.