BENGALURU- World stocks will keep rising over the coming year, according to the latest Reuters polls of strategists, but wild gyrations are likely in the lift from expected central bank policy easing and drag from developments in the US-China trade war.
Fears of a global economic slowdown as the world’s largest economies become more deeply locked in a tit-for-tat trade tariff war unnerved world stocks last year, with all the indexes polled by Reuters, barring India and Brazil, in the red in 2018.
While stocks have recovered globally so far this year, the latest polls of nearly 300 equity strategists showed nine of the 17 indexes polled on would not recoup last year’s heavy losses by end-2019.
When asked on the probability of a significant correction in equity markets this year, strategists gave a median 30 percent chance of that happening.
But by the end of 2020 most of those indexes will have recovered 2018’s losses and more as nearly 80 percent of strategists in response to an additional question said the current global monetary easing path will help equities.
“Our cautiousness on the outlook for equities suggests reducing risk ahead of what looks like another – possibly significant or more than 10 percent – drawdown. But we also caution against the urge to take too many chips off the table,” said Julien Lafargue, head of equity strategy at Barclays.
“Going against central banks has been a losing strategy for years and this is unlikely to change. While the long lasting impact of quantitative easing and negative interest rates is questionable, from a short-term equity market perspective, there is no doubt their effect is positive.”
A breakdown of predictions reflected the margin of gains in stock markets over the coming year to be directly proportional to how much interest rate ammunition is available for respective central banks.
While European indexes were forecast to gain some ground next year they were expected to lag other developed economies where benchmark interest rates were still positive.
In Asia, excluding Japan, stock prices are expected to continue their rise and recover lost ground with double-digit cumulative gains from 2018 close predicted over the coming year.
The volatile Brazilian Bovespa index was expected to surge ahead nearly 34 percent by end-2020 from here and Mexican shares were poised to gain nearly 14 percent for the same period.
Still, not only have strategists trimmed their forecasts for where most indexes polled will trade by end-2019 and mid-2020 compared with predictions made just three months ago, over 70 percent of respondents said the risks to their outlook were more pessimistic.
US benchmark stock gains have probably neared their ceiling as economic growth risks from the trade war are expected to gnaw at investors and limit the benefits from the Federal Reserve’s policy easing.
That clearly reflects nervousness in financial markets based on the inverted US yield curve – which has historically been a highly accurate predictor of a US recession. – Reuters