BENGALURU- Global stocks will shake off recent weakness and rise over the next 12 months but at a more tempered pace than this year’s rally, found a Reuters poll of equity analysts who also said a correction was likely in the next six months.
Uncertainty around the virulence of the Omicron coronavirus variant and its ability to evade vaccine protection led to a rare sell-off in financial markets last Friday.
But some analysts reckon that flight to safe assets and heightened volatility suggests markets may be in for a bumpier ride in the short run.
Indeed, when asked if a correction in their local equity market was likely, about three-quarters of respondents – 79 of 106 – in a global poll covering major indexes from over a dozen countries said Yes.
Federal Reserve Chair Jerome Powell’s remarks on Tuesday that the US central bank would discuss whether to accelerate the unwinding of its asset purchases program didn’t help risk assets.
“Looking ahead, we continue to see market upside, though more moderate, on better-than-expected earnings growth with supply shocks easing,” said DubravkoLakos-Bujas, chief US equity strategist and global head of quantitative research at JPMorgan Securities.
“The key risk to our outlook is a hawkish shift in central bank policy, especially if post-pandemic dislocations persist.”
The broader poll of over 150 equity analysts around the world taken Nov. 15 to Dec. 1 showed most indexes bouncing back from the current downtrend and touching new highs by end-2022.
Of the 17 major indexes polled on, 10 were expected to surpass their lifetime highs over the next 12 months, with five reaching that milestone as early as mid-2022.
Driven by earnings and economic growth, the benchmark S&P 500 index will extend this year’s rally and gain 7.5 percent between now and end-2022 to finish at 4,910.
The pan-European STOXX 600 is forecast to rise 7 percent and reach 500 points by July, 10 points above its lifetime peak hit on Nov. 17.
India’s BSE Sensex was expected to falter in the near-term but recoup its current loses and hit a high of 63,000 by the end of next year.
Despite scaling new peaks, the majority of the 17 global indices polled on were forecast to neither repeat nor surpass this year’s strong performance next year.
Underpinned by a solid corporate outlook, Japan’s Nikkei share average index was expected to reach 31,000 by June 2022, around an 11 percent gain from Tuesday’s close.
When asked to give their outlook on corporate earnings in their local markets over the coming six months, over 85 percent of strategists polled, 79 of 91, said they expected earnings to improve.
“We expect earnings to be the key driver of global equity returns in 2022. In line with our earnings expectations, we expect high single-digit equity returns in 2022 compared to double-digit returns in 2021,” said Philipp Lisibach, chief global strategist at Credit Suisse.
“Other tailwinds for this asset class going forward include the ongoing economic recovery, and the ‘there is no alternative’ (TINA) argument for equities.”
The discovery of the new Omicron coronavirus variant towards the end of November has sent markets tumbling – the culmination of a volatile month for almost every asset class globally.
Tuesday’s warning from the head of drugmakerModerna, that current vaccines are unlikely to be as effective against Omicron, made for a painful end of the month for markets, with fresh selling across confidence-sensitive asset classes.
Roughly $2 trillion has been wiped off the value of MSCI’s 50-country world stocks index since mid-November. Rising COVID-19 case numbers and moves by countries such as Austria and the Netherlands to reimpose restrictions were a warning sign but the selloff accelerated rapidly on Friday after South Africa identified the new Omicron strain.
An attempted bounce on Monday was then quickly wiped out on Tuesday after the comments from the Moderna CEO and warnings that it could take 3-4 months to rework vaccines.
Oil prices are now down 15 percent for the month which, like travel stocks, is also the worst month since the COVID rout. It does, however, come after a more than 400 percent surge in prices since that trough. Graphic: Oil sees third biggest monthly fall in five years.
Money markets, which had built up expectations of how much global policymakers will raise interest rates next year, whittled them down when news of the Omicron variant emerged, only to partly restore them after hawkish comments by Fed boss Jerome Powell.
They again price the United States to start raising rates from July 2022, having backtracked earlier to September 2022. However, bets at the start of last week had been on June.
In British money markets too, traders now expect only a 50 percent probability of a 0.15 percent hike from the Bank of England on Dec. 16 compared to 80 percent probability last week, according to Refinitiv data. In Europe, markets don’t expect the ECB to increase interest rates at all next year. Graphic: Rate hike bets slip as new COVID variant rattles markets, – Reuters
