Tags: Nomura | Janjuah | Stocks | prices

Nomura’s Janjuah: Stocks Will Fall 25% Despite Central Banks’ Tactics

Thursday, 26 Jul 2012 12:35 PM

By Michael Kling

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Stocks will fall up to one-fourth over the next few months despite central bank actions, Bob Janjuah, co-head of global macro research and head of tactical asset allocation at Nomura, predicts.

“[I] expect over the next four months to see global equity markets fall by 20 percent to 25 percent from current levels and to trade at or below the lows of 2011,” Janjuah wrote in a research note, according to CNBC. Specifically, he expects the S&P 500 to trade between 1,000 and 1,100, down from its current level of nearly 1,400.

Janjuah believes most analysts are too optimistic about economic growth.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

“The growth weakness is driven by a shortfall in true end global demand, and in particular we still think the consensus is most off-target in its still too bullish growth expectations for the United States and the emerging markets/Brazil, Russia, India and China complex,” he wrote, CNBC reported.

Many forecasters believe the Federal Reserve and the European Central Bank will intervene with monetary-easing efforts. Again, they are too optimistic, he said, in terms of the likelihood of central bank action and the impact that any actions might have.

The world will see a “global policy and political vacuum” through November, he wrote. The U.S. elections mean politicians and the Fed will not undertake major initiatives until at least November. Plus, substantial actions in China are unlikely until late 2012 or early 2013 because of leadership changes in that country, he cautioned.

Inaction in the eurozone is a well-known problem and will probably remain an issue for quite some time, he predicted, according to CNBC.

“I think full fiscal and political union is the only credible answer, but this is unlikely to happen smoothly nor anytime soon,” Janjuah said. “We may be talking years, but certainly many quarters.”

Only an unrestricted quantitative easing effort from the ECB can turn around the eurozone economy, but that will not happen until deflation there is obvious, he added.

Central banks around the world are considering how to jumpstart the sputtering global economy, although it is not clear how successful they will be, according to Bloomberg.

“It’s not obvious central banks have been effective, but they’re going to keep trying,” John Stopford, head of fixed income at Investec Asset Management in London, told Bloomberg.

ECB President Mario Draghi’s comment that the ECB will do “what ever it takes” to save the euro prompted investors to speculate that the central bank will buy bonds of troubled eurozone countries, Bloomberg noted.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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