World stock markets set to edge higher
Central bank cash fuels stock market rises
Emerging markets set for biggest gains
LONDON (Reuters): Central bank cash filtering through financial markets will nudge global stocks higher between now and year-end, Reuters polls showed last week, with gains in the first half of next year likely to be more modest.
Since last year’s disastrous showing, most of the world’s major stock indexes have gained steadily this year and over 400 analysts surveyed around the globe over the last week largely expect that trend to continue into the new year.
All but one major index – crisis-hit Spain’s – was expected to be higher at the end of December than it is now.
Analysts tipped major indexes in Russia, Brazil, and mainland China for the biggest rise between now and mid-2013.
Still, the overall tone of the survey was cautious in comparison with previous polls, even among notoriously over-optimistic equity strategists.
They predicted double-digit gains between now and midway through next year for six out of the 20 stock markets covered in the latest poll, compared with expectations for 14 this time a year ago.
Feeble economies were cited as the biggest reason why most markets can expect fairly muted gains in the months ahead, acting against the hundreds of billions of dollars in central bank cash that have bloated stock markets.
“I’ve never been faced with a time in my career where the next six months were so critical and that includes the crisis of 2007-08,” said Peter Gibson, chief portfolio strategist at CIBC World Markets.
Although the risk of a euro zone disaster seems to have eased for now, analysts are worried US politicians will fail to avert some $600 billion in automatic spending cuts and expiring tax breaks early next year – dubbed the ‘fiscal cliff’.
The outlook for major European economies remains dire, as most have floundered badly this year, and there seems little prospect of a sudden upturn soon.
Europe’s economic misfortunes hit Asian exporters hard this year, dampening the outlook for emerging market stocks.
Still, as usual in the stock markets poll, emerging market stocks were tipped for the heartiest gains from now.
Rally in recession
European shares have rallied since the European Central Bank revealed plans to buy the government debt of struggling euro zone countries – welcomed by economists as an important step to prevent the region’s debt crisis escalating.
German shares, rather than fast-growing emerging market stocks, have soared the most this year, with the DAX 30 up more than 25% since the start of the year.
But that rally is likely coming to an end, with Germany’s economic peers in Europe struggling badly.
Analysts expect the DAX will manage little better than a 2% gain from now until mid-2013 – the weakest rise projected for any of the poll’s 20 indexes.
US stocks also look set for some low-key few months ahead, having achieved double-digit gains so far this year. The S&P 500 is expected to rise less than 3% between now and the end of the year.
There was a palpable sense of uncertainty in forecasts for American stocks, partly reflecting the presidential election coming in November. The fiscal cliff was foremost among worries for US stock watchers.
“I’ve become a little more bearish about an adverse outcome from the fiscal cliff, which I think Wall Street has gotten complacent about,” said David Joy, chief market strategist at Ameriprise Financial, which has about $570 billion in assets.
“I’m going to predict it gets triggered,” said Joy, who sees the S&P 500 falling to 1,350 by mid-13, largely because of these events. The S&P closed at 1441.59 on Tuesday, its worst day since June.
In common with previous polls, analysts earmarked Brazilian and Russian shares among the strongest performers from now.
Moscow’s RTS could rise 15.8% from now until mid-2013, while respondents tipped Brazil’s Bovespa for a 15.7% gain over the same timeframe.
And, as with almost all the other indexes, analysts cited the wall of cash central banks have been throwing at markets as critical for their positive outlook.
“Even though (Brazil’s) economy is accelerating and confidence is rising, the motor is really external,” said Katherine Rooney Vera, a strategist with Bulltick Capital Markets in Miami.
“It’s the Fed flooding the market with liquidity, absolutely pushing investors to look for yields.”