By Rahul Karunakar
BENGALURU (Reuters) - The historic run-up in world shares will continue through 2019, but the outlook for almost half of the major bourses polled by Reuters has slipped, with many now only expected to recoup losses from this year's sell-off.
Following a strong performance in 2017, world shares hit their latest run of new highs this month on solid economic and corporate earnings growth. But rising interest rates and concerns about escalating trade tensions have made the direction of travel more turbulent and trade more volatile.
"We expect markets to remain choppy in the months ahead as investors weigh up the various conflicting influences that are now in play. The volatility that we anticipate will at times be a source of discomfort for investors, but it will also be a source of opportunity," said Paul O'Connor, head of the multi-asset team at Janus Henderson Investors.
The consensus from over 300 equity strategists and brokers around the world shows all the indexes polled by Reuters to rise further through to the end of next year, including predictions for the blizzard of records to continue for some of the bourses.
(Reuters global stock markets poll graphic: https://bsmedia.business-standard.comtmsnrt.rs/2nHJiJ9)
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But none of those indexes were forecast to rise more this year than they did in 2017. Predictions for nearly half of those indexes were also tempered in the latest poll, taken Aug 17-30, compared with a survey just three months ago.
Nearly a decade of easy monetary policy, which fueled the current bull run, has resulted in stretched share prices, with the price-to-earnings ratios in a majority of stock indexes already trading above long-term averages.
Strategists have previously said corporate earnings growth should be a result of capital business expenditure and not the current trend of stock buybacks.
Nearly half of 66 strategists who answered a separate question said the switch from share buybacks to substantial business investment is not likely to happen anytime soon.
Only five said it would happen this year, 18 said it would happen next year and 11 said in 2020.
"We maintain that there is clear evidence that funds originally earmarked for capital investment are being redirected to share buybacks, and that this trend is likely to continue for so long as geopolitical and trade-related uncertainties remain elevated," noted Robert Phipps, chief investment officer at Per Stirling Capital Management.
"Companies know that they can boost earnings per share by reducing the number of shares outstanding. However, they are unlikely to make long-term capital investments for so long as there is so much uncertainty - particularly trade-related uncertainty - on a global basis."
In other words, for the U.S. at least, that means that whatever boost to business investment might have been in store from huge corporate tax cuts passed by Congress last year are likely to be offset by the Trump Administration's escalating trade war with China.
When asked, respondents were split on their latest outlook for world stocks compared to the beginning of 2018.
Thirty-eight of 82 strategists said they were more bearish and 37 were more bullish. The remaining seven said they had not changed their view.
Wall Street's longest-ever bull run - as measured by the Standard & Poor's 500 - is set to slow its charge to end the year around current levels as earnings growth slows sharply, which will also temper any advance next year.
The risk that Britain leaves the European Union with no deal means that for the near-term at least, Britain's FTSE 100 will lag its peers.
European shares are set to partly recover in the remaining few months this year but aren't likely to push past January highs, ending the year with a meager gain and with weak momentum running into 2019.
While emerging market stocks have taken a beating this year, they were expected to outperform developed countries shares by the end of next year on hopes the trade war will cool off.
Slightly more than half, 28 of 54 respondents who answered a separate question, said it will be more than a year before investors turn in favour of emerging market stocks.
Twenty-three said it will take anywhere between three months and a year. Only three respondents said it could be within the next three months.
India's BSE Sensex Index, which has gone against the trend and gained nearly 14 percent this year, was forecast to set a new record high by year-end despite being rated expensive with plenty of downside risks still in play.
And uncertainty around Brazil's presidential elections was expected to curb stock gains there this year.
"While emerging market stocks may have begun to look cheap by some historical metrics, we remain underweight," noted Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.
(Additional reporting and polling by correspondents in Bengaluru, London, Mexico City, Milan, Moscow, New York, Sao Paulo, Shanghai, Tokyo and Toronto; Editing by Chizu Nomiyama)