|
|
|
  |
|
10-06-2009
Is the rally in equity markets sustainable?
Global equity markets have staged an impressive recovery since mid-March: the S&P500 and the Euro Stoxx are up by about 40% from their lows, and even the Swiss SPI by some
30%. Not unsurprisingly, the rebound occurred at a time when investor confidence was plumbing new depths and the media focus was on equity investors throwing in the towel and
seeking refuge in the ostensible safety of government bonds. Our decision to move back into equities in late March/early April was based on four points:
1) First signs that the US housing market was stabilizing
2) A turnaround in revisions in forecasts of corporate earnings
3) The conviction that our core scenario predictions of economic stabilization and positive growth in earnings in 2010 are on track
4) Investment sentiment had bottomed
While points 2 and 3 above have improved or become more probable, points 1 and 4 have not only not shown any further improvement, but may have worsened. It is pleasing to note
that the trend toward upward revisions in earnings forecasts continues, although from a very low level (point 2). We are sticking to the forecast of our core scenario that the
global economy will bottom in the second half of 2009 and that the positive effects of the global economic stimulus programs and expansive monetary policies will continue to be
felt at least through to the end of 2010, especially as the major part of the USD 800 million stimulus program in the US will be implemented only in 2010. The uptick evident in
the latest global economic data is not a reason for us to revise our forecasts, but rather a necessary condition for an economic recovery at all (point 3). Seen in this light, the
fundamentally solid trend in equities should continue for some time, as equity markets tend to anticipate economic developments by about six months on average. However, a
short-term stock market correction cannot be excluded. The pace of the rebound in equity markets has been breathtaking and investor sentiment has already normalized (point 4). In
addition, signs of stability in US house prices remain tentative; in March various house price indices (including the Case Shiller 20 City) fell yet again (point
1).
We remain invested in equities. Our investment focus is emerging markets, the infrastructure and commodity sectors, alternative energies (Vontobel Fund - Global Trend New Power)
and future-oriented resources (Vontobel Fund - Global Trend Future Resources). In our bond allocation we continue to recommend underweighting government bonds and overweighting
corporate bonds and convertibles by investing in the Vontobel Fund - Global Convertible Bond.
|
|
Dr. Thomas Steinemann
|
|
| Chief Strategist of the Vontobel Group |
|
| +41 (0)58 283 78 44 |
| E-Mail |
|
|
|
|
|
|
