Stock markets should rise significantly over the next year, according to Stephen Bell, economist at ...
Stock markets should rise significantly over the next year, according to Stephen Bell, economist at Deutsche Asset Management.
Bell said a lot of good news is being overlooked at present. 'World recovery is underway, the profits outlook is good, investors are too negative on Japan and emerging markets look good value.'
He said it is only in Europe, where there are some big decisions on European Union expansion, that the outlook for growth is flat.
He said it is hard to explain why global markets have been so weak and are back to the levels they were five years ago, adding it is definitely not a reflection of the state of the world economy.
'Most forecasts said the world economy would contract. What actually happened is 6% growth in US in the first quarter of 2002. Japan grew at nearly 6% as well.' Bell said investors may have taken too much notice of the possible impact on confidence of 11 September. He added that, historically, other notable events had not had such an effect on the markets.
'Kennedy's assassination had a small effect on the purchasing managers' index, a widely used indicator for the US economy. The Cuban missile crisis had no impact. The Gulf War impact was bigger but not much.
'It seems there is only an impact if the economy is weak. It was weak going into August 2001, but we've seen a turn and now our forecast is for a vigorous upturn.
'There is no problem at all with the world economy.' Bell said a part of the reason for the fall in markets could be the reduced expectation for corporate profits.
Attitudes towards companies have also changed in the US, where many chief executives and accountants are now being viewed with suspicion. But Bell argued profitability is also rising very strongly and that strength more than outweighs concerns about earnings quality.
Profits are also rising in Japan driven by higher industrial production.
He said: 'Inventory cycle drives industrial production. Inventory data from Japan is good and when it turns up it indicates an industrial upturn. I think it will be sustained.'
Other concerns hitting the US have been worries about structural problems. Recent increases in defence spending have led to fears of a fiscal crisis, and currency problems but Bell believes that as a share of GDP, defence spending looks containable this time. Ratings also show there is a good case for equities, Bell said.
'Fundamental valuation has proved a very good guide over time.'
$17trn of debt is now ‘paying’ a negative yield
47 million Brits without financial advice
Faces substantial prison term
General election on 12 December