Credit Suisse recommends buying stocks

Investors should raise holdings of stocks worldwide following a selloff in the past month and on speculation the US Federal Reserve won't let a credit-market debacle hurt economic growth, Credit Suisse Group said.

Strategists led by Andrew Garthwaite at Switzerland's second-largest bank lifted their recommendation on global stocks to a 5 per cent ``overweight,'' from 3 per cent previously, according to a report distributed on Wednesday. An ``overweight'' stance means investors should hold more of the assets than are represented in indexes.

Morgan Stanley Capital International's World Index tumbled 11 per cent between July 20 and August 16 on concern stricter access to credit will slow economic and earnings growth, and impede takeovers.

In an effort to restore confidence amid a credit crunch sparked by US subprime mortgage losses, the Fed on August 17 cut the interest rate it charges banks.

"If left unchecked, the liquidity crisis threatened to have a significant economic impact and the Fed want to stop this happening,'' wrote Garthwaite, who ranked third among individual strategists in this year's Thomson Extel survey of investors.

Stock valuations are now clearly attractive. The MSCI World is valued at an average of 15.5 times its members' trailing earnings, according to data compiled by Bloomberg. On July 19, the ratio stood at 17.4.

Credit Suisse joins other banks in saying that equities have become more attractive following the rout. Teun Draaisma, the Morgan Stanley strategist who advised trimming holdings in Europe before declines in February and July, raised his recommendation on stocks in the region to overweight from neutral on August 13.

Ted Scott of F&C Investments said that investors lured by lower stock prices will fall in a valuation trap'' that will result in further losses. He oversees the $205-million F&C UK Growth & Income Fund.

Garthwaite recommended ``cheap cyclicals'' such as Ericsson AB, the world's largest maker of wireless networks, and Caterpillar Inc., the biggest maker of earth-moving equipment.

Ericsson has a price-earnings ratio of 13.85 times estimated profits, compared with Nokia Oyj, the world's biggest mobile phone maker, which trades at 16.05 projected earnings. For Caterpillar, the multiple is 13.64, compared with 14.86 for the Dow Jones Industrial Average, in which the company is a member.

Credit Suisse also upgraded its recommendation on steel stocks to ``overweight'' from ``market weight.''

``All the drivers of demand growth'' remain intact, London- based analyst Michael Shillaker wrote in a research note dated August 20, citing a positive outlook for the economy.

Arcelor Mittal is Credit Suisse's favourite steel pick, the note said.

Stock markets probably won't rebound sharply, Garthwaite wrote. A credit crisis in 1998 that was set off by the collapse of Long-Term Capital Management LP required two interest-rate cuts by the Fed to help markets recover, he wrote.