Intermediaries might finally be able to reassure clients that stockmarkets will improve in the comin...
Intermediaries might finally be able to reassure clients that stockmarkets will improve in the coming months, but not until the end of the 3rd quarter, suggests Fidelity Investments.
John Ross, Portfolio Strategist at Fidelity Investments, says he is uncertain when the bear market will eventually turn and is likely to "bounce" again.
However, the bulk of US company reporting for the second quarter - which heavily influences our own markets and which investors expect to be negative - will be over by around August 14, so investors might expect to see improvements in both confidence and company earnings growth.
Part of the current problems is there are actual signs of a gradual recovery in US profit growth and investment spending, says Ross, but many stockmarket investors have ignored a company's performance figures because scandals such as the Enron affair, Worldcom and Tyco have forced investors to question whether previously published results were accurate and companies were therefore correctly valued.
Recent volatility on the FTSE 100 and other UK indices has been largely the result of US negative investor confidence in company reporting, rather than the publication of actual bad news in earnings growth, says Ross, and has forced consumers to ask whether companies are truly valued.
What investors should expect to see is companies, which in the past used "aggressive accounting", reducing their figures and earnings growth in the second quarter to reflect the changes to their accounting structure.
"Investors got so worried about where the next blow-up is going to be that [the investors] have stopped focusing on what is really happening at companies and only focus on negative news," says Ross.
"More companies have reported higher than expected earnings, than would have been expected and corporate profits are now going up. But no-one is focusing on them.
"What we will see in the second quarter is if companies have been 'fudging' their accounts, it will show when they report between now and August 14," adds Ross.
Once that date passes, investors in the US might begin to look more favourably at earnings growth - providing they look at the cash flow a company holds rather than the PE ratio which can be manipulated - and other global economies will improve on the back of it.
Figures compiled by Fidelity Investments point out this has been the worst bear market the UK has seen since 1972, as the UK stock market has so far lost 42% since its high in September 2000 compared with the 72.8% loss when the bear market reigned between May 1972 - December 1974.
A stock market fall can only be classified as a "bear market" if it loses 20% or more, says Ross, whereas anything else is a "correction".
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