Global stocks will gain 25 per cent this year as government measures revive the economy and investors move from cash into equities, according to Nomura Holdings Inc.
“The scale of the planned stimulus ought to be large enough to short-circuit the feedback between asset markets and the real economy,” global equity strategist Ian Scott wrote in a note to clients dated January 9.
Investors should be “overweight” in financial stocks and so-called cyclical industries, which are more sensitive to economic swings, Scott wrote. He recommended an “overweight” position in emerging-market stocks, saying they will lead gains worldwide. Earnings will decline 21 per cent globally this year and investors face “dilution” as more capital raising takes place to shore up companies’ balance sheets, according to the note. The Standard & Poor’s 500 Index will rise to 1,110 by the end of the year, a gain of 24 per cent from the January 9 close, Scott said.
The recovery from last year’s record drop for the MSCI World Index will be led by cyclical and financial sectors and clients should position themselves “underweight” in so-called defensive industries, according to Nomura. The latter are companies that tend to be less sensitive to an economic decline. “If, as we suspect, the market recovery continues, then the underperformance of the defensives ought to be the main feature,” Scott wrote in the note.
Earnings estimates
The MSCI World slumped 42 per cent last year as $1 trillion of losses at financial firms pushed the US, Europe and Japan into the first simultaneous recessions since World War II. Analysts estimate earnings in 2009 will slip 1.2 per cent in Europe’s Dow Jones Stoxx 600 Index, while profits in the S&P 500 may fall 2.1 per cent, Bloomberg data show.
Citigroup Inc. strategists forecast corporate earnings are about a quarter through an estimated 50 per cent tumble from their peak, according to its 2009 global outlook report dated January 7. Profits will drop sharply, reflecting the “collapse” in demand from the fourth quarter of last year, they said. In emerging markets, stocks will surge 35 per cent this year as the result of stimulus measures overshadows the slowdown in goods sold outside China, according to Nomura.
“We have retained an upbeat outlook on China’s economic growth of 8 per cent during 2009 as monetary easing and fiscal pump priming ought to offset the effects of an export slowdown,” Nomura’s chief Asia and emerging markets strategist Sean Darby wrote in a separate note dated January 3.
China growth
China’s economy will expand 7.5 per cent this year, the slowest pace in almost two decades, the World Bank predicted. Emerging-market stocks are trapped in a “big, fat trading range” this year, according to Michael Hartnett, Merrill Lynch & Co.’s global emerging-market equity strategist. The MSCI Emerging Markets Index, which closed at 571.25 on January 9, may fall as low as 400 and rise to as high as 800 as “cheap” valuations offset a weak global economy and the prospect of lower profits, Hartnett said in December.
Jonathan Garner, head of Morgan Stanley’s emerging-markets strategy team, predicted the MSCI gauge will rally to 810, while Andrew Garthwaite, Credit Suisse Group AG’s global equity strategist, expects a rise to 630.
Clients should be “underweight” in Japanese shares, while remaining “overweight” in Asian equities, Nomura’s Ian Scott said. He maintained a “neutral” stance on European stocks.
The author is a Bloomberg News columnist. The opinions expressed are his own
