Goldman Sachs Says Corporations Will Be The Driving Force Of Demand For U.S. Equities In 2016
Goldman Sachs' Strategist David Kostin reiterated a view Benzinga covered last weekend, which is that corporations are the primary buyers of U.S. equities in 2016. Kostin says 2015 was the second-largest year for corporate buybacks since 1952, excluding 2007. As for 2016, he expects corporations to use their excess cash to buyback $450 billion in U.S. equities in the midst of an expected modest 2 percent GDP growth.
Foreign buyers are expected to continue to have nothing to do with equities, according to Kostin. He expects foreigners to remain net sellers through 2016 (if you don't want to believe this, Kostin offers a reason for possible inflows, covered below. Like a true Goldmanite, he's hedged.)
In 2015, China and Canada were the primary drivers of investor outflows in the US.
In fact, the foreign investor flight out of the US has plummeted to insane lows compared to the past 20 years:
The breakdown for China investors on a quarterly basis has been expanding at a rate of 2x per quarter since Q2 2015:
As for the Middle East, Kostin says "2015 outflows from US equities stemming from investors in the Middle East and Canada were at their highest levels since 2004":
The likely driver of foreign outflows is the strong U.S. dollar. Kostin notes, historically, foreign purchases are lower during periods of stronger USD vs. periods of weaker USD. Forecasting a trade-weighted Dollar index gain of 8 percent in 2016 defends Kostin's view that outflows will continue.
But Wait, There's More
Need a reason to go against the view that a rising dollar, based on history, yields foreign outflows? Kostin says an expectation of oil at $47 (+5 percent) during the next 12 months "should increase flows into US stocks from the Middle East and Canada this year."
Regardless of whether a higher USD will drive outflows or if higher oil will drive inflows, what matters is that corporations are the primary conduit for inflows in the U.S. equities, something not to expect in an economy with supposed near-employment, stable growth and a healthy outlook.
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