BlackRock's Doll favors emerging markets

BlackRock's Chief Investment Officer of Global Equities Bob Doll speaks while taking part in a Reuters Investment Outlook Summit in New York December 8, 2009.

NEW YORK (Reuters) - A higher savings rate and the absence of the "debt noose" that is constricting much of the developed world make emerging markets a more favorable investment story, Bob Doll, a vice chairman at BlackRock Inc (BLK.N), said on Tuesday.

Though Doll said he sees "a significant amount of upside" to earnings of large-cap U.S. stocks, he said BlackRock -- the world's largest money manager -- has a "broad preference" for emerging markets over developed markets.

Doll said some of the developing world, such as Brazil, has the depth of financial markets and government institutions that border on developed economies.

"Absence of the debt noose around the neck that much of the developed world has, the emerging markets also have a much higher savings rate -- therefore more flexibility in terms of planning their future," Doll told the Reuters Investment Outlook 2010 Summit in New York.

A growing middle class and growth in consumption also make emerging markets attractive, along with valuation levels that are comparable with the developing world, he said.

As for the developing world, which accounts for more than 80 percent of the world's equity capitalization, Doll liked the United States, followed by Japan and then Europe.

"The reason for the U.S. first is the power of the cyclical solution, if you will, as exhibited by our leading economic indicators which have been screaming higher now for five or six months," he said.

"We think that combination of monetary and fiscal policy stimulus far outshines anything done in the rest of the developed world," he said.

Doll, however, said the United States faces headwinds, with the risk of deflation a huge worry. The Federal Reserve is likely to start raising U.S. interest rates in the third quarter of next year, he said.

Stocks, which have had gained about 60 percent since markets bottomed in March, have priced in some of the earnings upside in 2010, he said.

"Some of it is clearly priced in. I put it this way: we think we are past the point where the stock market goes up faster than earnings, and that has been the case," he said.

Doll expects stocks to earn about $75-$80 a share next year, and if they trade at a typical 15 to 16 times earnings, that could lift the Standard & Poor's 500 Index .SPX to a high of between 1,200-1,300 sometime next year, he said.

The S&P 500, whose earnings are projected to end 2009 at about $61 a share, closed down 1 percent at 1,091.94 on Tuesday.

Doll said some of the expected upside to U.S. stocks is "clearly priced," and while "we do see a significant amount of upside," there will not be a lot of revenue growth.

"Corporate America has shown through productivity and cost-cutting an amazing operating-leverage capability," he said.

(For summit blog: blogs.reuters.com/summits/)

(Editing by Leslie Adler)