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Sharp recovery predicted in corporate profitability

Tuesday 26th January 2010
By Mike Jones

Neil Rogan, Head of Global Equities at Gartmore, is anticipating a sharp recovery in corporate profitability in the coming months.

According to Rogan, the credit crunch led companies to cut costs and inventories much faster than they normally would in a downturn. Now, as the fourth quarter reporting season gets under way, he believes that there could be some good news in store.

"What we see happening at the bottom-up level is that companies are starting to see year-on-year revenue growth. They have cut costs and inventories sharply but still have lots of spare capacity, so that revenue growth is flowing through to profits. It might take three years to get back to peak revenues, but it might only take one or two years to get back to peak profits."

Although global stocks have already risen sharply from the 13-year low reached in March 2009, Rogan believes that there is still scope for further appreciation.

He said: "There are still lots of things to worry about, particularly large budget deficits, but the time when it looks as if there is nothing to worry about is usually at the top of the market. So - encouraged that so many people are worried about so many different things, I am positive on markets around the world from here, especially the developed markets."

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