Saxo Bank (Saxo Bank)
Markets  |  August 06, 2012 14:50:58

The outlook for equity markets: Least favorite type of assets

Growing uncertainty about the future of the euro area and the political risk, however, recently pushed prices of equities to historic lows.Shares in every sense got into bad investors who prefer them instead of investing in government bonds. Shares eventually experience a comeback in the third quarter, but it most likely will not occur because the risk is too high and the biggest threat is the potential failure of large banks in the periphery of Europe.


Global stock titles are still trading below the economic cycle, and the award meant a global index of purchasing managers in the manufacturing sector. This index is still slightly above the value of 50 points.There is still room for share appreciation. Potential growth is limited in the short term, because as a result of growing uncertainty regarding developments in the euro area continues the cycle of contraction. This situation is also reflected in our quantitative valuation model in the S & P 500, according to which earnings per share (EPS) concluded in 2012 at 103.3 per share, with respect to the ratio P / E of 13.1, our target price for end located at the 1350th
There are other factors indicating lack of interest in shares: Making Money by subscription of shares on stock markets are on a seven-year low, global activity related to mergers and acquisitions are rapidly approaching the lows 2009 and annual change in trading volumes is -23%. Pro-cyclical sectors, which include companies engaged in oil and gas and base metals are trading at prices that were last here in early 2009. The situation is also worse. Over a period of 20 years the annual return on the MSCI World index when adjusted for the dividend yield 6.8% annually, with annual worldwide level of inflation was 6.7%. When these low real yields can reach risky asset.

RISK OF LOSS: REPEAT bank runs CREDIT-Anstalt in 1931

The current situation and the global economic crisis can be found surprisingly many parallels, including the fact that both of these periods followed the culmination of a long credit cycle. It is curious that the European banking system could again become a catalyst for the second wave of global economic crisis. In 1931, when the U.S. economy is recovering from the shock of 1929, took place run on the largest Austrian bank then, the Credit-Anstalt. The crisis of Austria caught in bad financial shape and the state could not afford bank Credit-Anstalt save. The bankruptcy of this bank gradually dragged the global economy into the depths of real world economic crisis.Does not you present crisis the euro area? The biggest risk for the global economy and stock markets lies in the fact that a bank in the periphery of Europe becomes the target of a run - and will yet too large to be able to save their own government - or the fact that Germany refuses to provide for the salvation of their own funds or mutual funds area. How likely is this scenario? For deposits at sight is a tendency outflow from south to north, as the deepening imbalance this probability increases.

According to a study by the International Monetary Fund, the total of 147 banking crises since 1970, started one in four in September. Nearly 40% of all banking crises occurred during the third quarter, so too indebted and Europe's fragile banking system is entering a period of increased statistical risk. With regard to the above should provide investors against the risk of decline due to the European banking crisis by buying put options and increased exposure in various government and corporate bonds or hedgeováním long positions in futures markets.


There is uncertainty everywhere you look, but it is no novelty. Good opportunity to buy comes when the "blood flowing in the streets." This strategy is dependent on the catalysts in the form of positive surprises.

As for world stock markets, represents the greatest potential for the U.S. housing market and China. The U.S. housing market and the securitization of subprime mortgages were among the factors that exacerbated the financial crisis in the U.S.. Falling home prices, execution, overcapacity in the housing market, low annual volume of new construction and loss 2.2 miles . jobs in the construction industry have signed on the U.S. economy and banking sector. Increasing the number of building permits issued and construction begun, healthier level of excess capacity and house prices moving to a minimum, thus reviving the U.S. housing market could be the hidden factor thatre-starts the economy unexpectedly. Reaches the level of construction employment in 2003, created 1.2 miles . new jobs. Think about what impact this would have on revenues, expenditures, fiscal balance and ultimately the stock markets.

Since the end of 2010, economic growth in China slows down constantly. The most noticeable trend in exports. It also leads to a slowdown of credit expansion.It is interesting that the volume of new loans in China for the past 12 months in 2012 rose by almost 10% compared with zero growth in the previous two years. This fact remained largely unnoticed, however, may be a sign that the Chinese economy begins to accelerate again. Although macroeconomic indicators for the second quarter rather disappointing, a number of leading indicators suggest a turn for the better. Export growth in South Korea, which is considered as an important global leading indicator, has surpassed expectations and could mean another manifestation of a certain recovery despite persistent problems in Europe.


Will the U.S. and China's economy able to withstand problems in Europe and the euro area is able to hold together, they have certain segments of the global stock market has enormous potential. These mainly include world stocks of oil and gas companies and mining companies engaged in industrial metals. Both these sectors are trading at extremely low levels and the results vary much below the level of world stocks. Shares of industrial metals and oil since 1997, trading well below average and their valuation suggests that investors are included in the price of a deep global recession. Filled if the growth scenario, these two branches of a great bet because indirect lever built into the balance sheets of companies in these two sectors

Peter Garnry, equity analyst at Saxo Bank

 Globální online investiční banka

Saxo Bank je globální investiční banka specializující se na online obchodování a investice na mezinárodních finančních trzích. Saxo Bank umožňuje soukromým investorům a institucionálním klientům obchodovat s FX, CFD, cennými papíry, futures, opcemi a dalšími deriváty a poskytuje i profesionální správu portfolia a fondů díky svým online obchodním platformám oceněným řadou různých ocenění.

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