Below are some insights from Rockefeller & Co's Global Foresight: Re-born in the USA third quarter investment outlook, which focuses on some of the recent structural changes that have affected the US. In many ways, it says, the US economy has proven "remarkably resilient", having grown 1.8 per cent in the first quarter - an impressive number when considering it lost about 1.5 per cent of growth from tax increases and the sequestration. 

US dollar

“Our view on the dollar’s prospects is a global one and not
framed from the perspective of US-based investors alone,” says David Harris,
chief operating officer.

The firm believes that an improving current account deficit,
together with attractive valuation on a purchasing power basis and rising real
interest rates, bode well for the dollar against other currencies.

However, the term “strong dollar” might be misleading, with
advantages such as lower prices and interest rate flexibility at risk of being
offset by other considerations. For a global dollar-based investor, for
example, a weaker dollar means currency gains for non-dollar investments, while
for non-dollar bonds, a strengthening dollar is “almost unambiguously negative”
as bondholders do not share the benefits of improved competitiveness and
profitability that equity shareholders do, Harris said.

He recommends:

• Favor
  non-US multinational companies to US–based ones (although he notes there
  are exceptions);

• Favor
  firms selling to as opposed to from the US;

• Favor
  US-dollar based fixed income for US dollar-based investors; and

• Be
  cautious about non-dollar bonds, especially those in developed/developing
  markets.

The BRICS

Over the past few years, emerging stocks have “languished”
while the US
stock “surged ahead,” noted Jimmy Chang, chief equity strategy. BRIC currencies
have also weakened against the dollar (with the exception of the Chinese yuan). Meanwhile, many emerging (and developed economies, Chang
notes), are dealing with cyclical downturns and are in need of further easing.

He said: “As a case in point, year-to-date in 2013, there
have been 50 central bank rate cuts around the world compared to just nine rate
hikes. Among the nine rate hikes, three have already been reversed: one was
undertaken by Indonesia
recently to defend the falling rupiah, and the rest (by Egypt, Tunisia,
Ghana, and two by Brazil)
were carried out reluctantly to tame inflation and support sagging currency
values in spite of disappointing growth.”

As sell-offs in emerging market bonds drove EM currencies
lower, the combination of rising yields and falling yields carries the
potential of creating a “vicious cycle,” he added.

Indeed, most EM markets are stronger today than they were in the
mid-1990s, Chang said. However, he noted that Mexico’s
and Thailand’s
financial positions also “looked decent” prior to the earlier crises.

Chang emphasized that Rockefeller is “not predicting an
emerging market financial crisis,” as global interest rates remain at the
low end of the historical range – and this is despite a recent hike.

“However, the selloffs in the last few weeks taught
investors that leading central banks’ major policy initiatives are fraught with
unintended consequences that could show up in unexpected places,” he said.

EM equities, meanwhile, are still regarded by the bank as
attractive “for the long haul,” given that many EM countries are in a better
structural position than developed markets.

Chang recommends that investors “tread carefully” around
those countries that have established high current account deficits and
dependency on short-term funding. 

Thematic investing

John O’Hara, managing director and senior advisor, says the
resurgence in US
energy exploration and production is “such a gamer changer.” The case for
investing in industries and companies that might benefit from an enlarged US
energy production “appears to have accelerated.”

A decade from now, O’Hara anticipates a shift in focus among
economists and investment strategists from the housing rebound to energy in
terms of what might boost domestic growth. Besides a higher GDP, the
result, he says, will be visible by affordable energy, job creation, new
technology and independence from foreign sources of oil.

“We produce more oil at home than we have in 15 years,”
said President Obama during his State of the Union address, as cited by O’Hara.

O’Hara added that over the past decade oil production in the
Bakken field of North Daota has expanded
tenfold from about 80,000 to 800,000 barrels a day.

Meanwhile, he described the shale gas revolution as a “North
American phenomenon.” The continent has a 20-year head-start on the rest of the world due to
the abundance of domestic natural gas and ability to access it using home-grown
hydraulic fracturing technology (widely known as “fracking”.) One of the
challenges with this, O’Hara said, has been the ability to transport the product to a
refinery and then ultimately to the consumer.

“Until now, infrastructure issues have garnered far less
attention,” he said. But energy transportation firms have invested “billions of
dollars” in infrastructure, meaning such issues are now beginning to be addressed
through pipeline, railroad and barge solutions.