BCA Research: Global Stocks Have ‘Running Room’

Wednesday, 27 Feb 2013 07:56 AM

By John Morgan

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The world economic outlook is set to brighten despite slack business conditions, creating a “sweet spot” for global equities, according to Montreal-based BCA Research.

BCA said a variety of factors — including a recent steep fall in European sovereign spreads, a decline in the yen and better prospects for the United States and China — give hope for investors and could outweigh current reasons for gloom.

“These conditions give global equities running room,” BCA said in a blog posted on its website.

Editor's Note:
Billionaires Dump Stocks. Prepare for the Unthinkable.

“All of this suggests that the world economy will probably continue to operate at a pace that closes the output gap very slowly. This assessment is supported by the global inflation picture, which is either low of falling.”

The success of BCA’s forecast is at least partly dependent on continued easy monetary policy by governments. In addition, both nominal and real interest rates must stay low.

“This creates a ‘sweet spot’ for equity investors — modest growth, low inflation and negative real rates will support corporate earnings and embolden risk taking,” BCA predicted.

However, Marc Faber, publisher of the Gloom, Boom & Doom Report, predicts that global stocks may rise a bit further in the near term, but most countries will see drops of up to 20 percent this year.

And why will stocks fall?

“Earnings could disappoint, fiscal issues aren’t resolved,” he told CNBC. “Tax increases and more spending will have a negative impact on the economy.”

In addition, “numerous countries are basket cases that will spill into social unrest and geopolitical tension,” Faber said.
Russ Koesterich, chief investment strategist at BlackRock, believes emerging markets will make a comeback in 2013.

Although he predicts markets will remain volatile in the first half of the year, Koesterich anticipates this year will be good for equities.

“The market has obviously gotten off to a very strong start. While we expect a good year for equities, [it will] probably not be this strong throughout the entire year. While valuations look attractive, I think there is some risk that economic growth, at least early in the year, is going to disappoint,” he told Yahoo.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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