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Credit crunch bear market - When will shares recover in 2009 - Reply to topic

> alankeys

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Post Wed Dec 17, 2008 4:21 pm   Reply with quote      

When will shares recover ?
Created: 17 December 2008
Written by: Jonathan Eley

Few of us will forget 2008 in a hurry. The scale of losses from bad or unrecoverable debts is barely comprehensible, while falls (or rises) of 5 or even 10 per cent a day in stock markets have become almost routine. Every crisis brings opportunities, but our question this week is whether 2009 will be paradise for bargain-hunters, or just a suckers' rally within a multi-year bear market.

YES, says Michael Dicks, head of research and investment strategy, Barclays Wealth:

"Let me first be very clear about what we are not saying. We are not predicting that shares will start marching north on 1 January. We are not under-estimating the challenges that UK plc faces - if anything, it will be harder hit during 2009 than many other countries - and we are certainly not cheerleading for the stock market.

But we do maintain that valuation, momentum and the economic backdrop all point to equity outperformance in the future. The road to this rehabilitation - and it will be a long, hard slog - is likely to start in 2009. Our forecast for the FTSE100 is for a 14.6 per cent rise from January to December, with much of this gain weighted towards the second half of the year.

The backdrop to these predictions is an economic outlook that is bleak, but not apocalyptic. We recognise that high debt-to-income ratios mean that the shift to saving is likely to be more pronounced here than elsewhere, with obvious consequences for consumption. And not surprisingly, we concur with John Varley's view that we have not yet seen the bottom in the housing market. We expect four further quarters of negative GDP growth followed by an anaemic economic recovery in 2010.

So when should you re-enter the market, and what sort of shares should you buy? Equity markets tend to lead the economy by a couple of quarters, and looking at a range of economic indicators helps to predict the turning point. Our analysis here argues against taking a more aggressive stance on equities, until the end of the first half of 2009. When appropriate, we would look adding high-beta 'growth' and 'cyclical' stocks to portfolios, rather than the 'value' shares that are currently in vogue. The logic is that growth outperforms value coming out of a recession, whereas the reverse is true going into one.

In conclusion: the first half will be very tough, and other developed markets will recover quicker than the UK. But although it might not feel like it right now, things will get better in the stock market, and that process will start next year."

NO, says Jonathan Eley, online editor, Investors Chronicle

"After a year of financial meltdown, the like of which most people would only expect to see once or twice in a lifetime, it's tempting to think that the nightmare must soon end and recovery begin. And so it will - but I'm far from sure it'll be next year.

There are several reasons why this is the case, and they are ones that many of my IC colleagues have already alluded to. Chris Dillow, for instance, has pointed out that big falls in shares during one year do not necessarily indicate a recovery the next. If you'd bought shares at the end of 1973, you would not have been quids-in during 1974 - in that bear market, shares fell by almost three-quarters from peak to trough. At its lowest point this year, the FTSE100 was 44 per cent below its 2007 peak, and right now, it's "only" 36 per cent off.

Simon Thompson has pointed out that if shares appear cheap at the moment, it may only be because the earnings expectations used to calculate such yardsticks are inflated. The first quarter of 2009 is likely to see a series of profit warnings and dividend cuts, and a further downward leg of the bear market.

At that point, shares might indeed be genuinely cheap. But who is going to buy them? Not the companies who fell over themselves to borrow money to buy back shares when the market was rising. Not the private equity groups, whose debt-funded takeover binge injected billions into the market during 2006 and early 2007. Not the hedge funds, who are being hit with huge redemptions. And almost certainly not the private investor, for whom fear, rather than greed, is likely to be the dominant emotion for 2009.

Yes, returns on cash are low, but not that low, when you allow for low inflation, or even deflation. Equity yields are higher than bond yields, but so what? That's been the case in Japan for years, but equity markets there haven't recovered.

Investors have come to expect ludicrously high returns from many asset classes. With smoke, mirrors and a generous amount of monetary greasing, the financial markets have hitherto 'met' these expectations. But now they've been found out, the hangover is going to be a long one."

> alankeys

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Post Sat Dec 20, 2008 11:40 am   Reply with quote      

Stockmarket analysts look past the pain
Rough ride ahead but bank on bottom-fishing opportunities in 2nd half-year, they say


(SINGAPORE) For stockmarket investors gazing into the new year, any decisive rebounds and opportunities for bottom-fishing are likely to come in the second half of the year, analysts say.

For H1, analysts recommend high-yield defensive stocks in the telecoms, land transport and media industries.

Till then, investors will be in for a tough ride marked by more downsides and volatility as corporate earnings and the economy are tested.

'It's a foregone conclusion that the outlook for next year will be worse than this year if you look at all the economic indicators and the related corporate fundamentals that go along with it,' says Kelive director of retail research Ong Seng Yeow.

Last week, Asian stocks got a lift from the largest US infrastructure investment plan since the 1950s unveiled by President-elect Barack Obama, before the failure of the rescue deal for the Big Three carmakers put markets into reverse. The Straits Times Index ended the week at 1,740.34 points, but still only half way from the level it reached for 2007.

Analysts believe there could be a near-term rebound from the typical New Year's effect and the expansionary Budget to be announced in January. But any reprieve will be short-lived as the economy, jobs market and corporate earnings may not recover till 2010.

Markets are still pricing in a re-run of the 1997 Asian financial crisis, or worse, some analysts say. CIMB-GK research head Kenneth Ng expects a bottom of 1,200 points to be reached in the third quarter at best, which is 0.7 times price to book (P/B) - the trough of the Asian financial crisis.

'There is potential for Singapore GDP to be the worst ever. In this climate, I don't think the market will rally convincingly,' Mr Ng says. With recovery in the external economy expected to come in 2010 at the earliest, we are likely to see very weak corporate earnings in the first half of next year, he adds.

Most analysts think that poor fourth-quarter earnings due to be announced early next year will show only the initial recessionary impact and there could be more earnings downgrades.

Corporate margins will be eroded as producers in sectors saddled with overcapacity cut prices to get sales moving, Mr Ng says. He is projecting a 16 per cent slump in earnings per share (EPS) of the STI component companies for 2009 from an estimated 8 per cent decline for 2008, which is one of the more dismal EPS outlook for 2009 among analysts.

Mr Ong of Kelive thinks that with the slowdown in corporate earnings to be reflected in the next six to nine months, the STI could retest the lows of 2008 around the 1,500-point level. 'We are looking at the 1,300 points as a level to enter,' he says.

Most analysts expect a rebound in stocks in the second half of 2009, which could take the benchmark STI higher by end-2009.

CIMB-GK is calling a bottom-up target of 2,040 points while UBS Investment Research pegs its end-2009 STI fair value at 2,100 points. UOB KayHian, which expects the market to trough in the first quarter given its undemanding valuation of 0.99 times P/B, eyes a bottom-up STI target of 2,150 points.

Average equity returns have a good chance of turning positive by end-2009, Mr Ng of CIMB-GK says.

So how should investors position themselves for 2009?

For the first half, analysts recommend high-yield defensive stocks in the telecoms, land transport and media industries. They favour blue chips over small caps, and cash-generating businesses given the tight credit condition.

Mr Ong of Kelive says that index proxies will probably be on investors' radar. He thinks a portion of investors' portfolios should be in defensive stocks 'which are critical in preserving value and collecting some dividends as the market turns south'.

Some analysts have also started looking beyond earnings to consider the balance sheet strength of companies in their search for 'deep-value' stocks.

According to a recent Deutsche Bank report, conglomerates such as Keppel Corp and land transport companies ComfortDelGro and SMRT have low refinancing risk given their net cash position and low gearing.

In a strategy report, Merrill Lynch recommends stocks that will emerge winners in the next cycle. It says that investors with a long-term horizon of over one year should consider stocks such as UOB, City Developments and Sembcorp Marine.

It all boils down to individual corporate fundamentals, says ST Asset Management president and CEO Goh Mui Hong. 'If the company can survive without gearing, I think those would be the companies that will last.'

But she prefers bonds over equities for next year, since bondholders get priority over shareholders in a credit event.

Towards the end of 2009, cyclical stocks such as financials and commodities could be rebound bets, Mr Ng says. Sectors not plagued by overcapacity would recover first, he adds.

For investors with a long-term view, DMG & Partners Securities co-head of research Terence Wong believes that 2009 is still 'a great time to look for stocks that could see their share price multiply in the years to come'.

> alankeys

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Post Sun Dec 21, 2008 12:14 pm   Reply with quote      

Market tactics: What does the future hold?
By Tim Cooper | 00:01:00 | 21 December 2008

The advisers’ view

Roy Rutter, principal, Aptitude IFA

Investors and advisers alike will be glad to see 2008 close. Many investors will wonder if their hard-earned savings would have been better under a mattress for the first decade of the 21st century. Precious few funds will post plus figures for the last 12 months or even the last three years.

But do 2009 or 2010 hold out anything better? In the UK Messrs Darling and Brown have taken a huge gamble with their pre-Budget measures. The level of debt will certainly not fall as quickly as it is about to rise. A short-lived boost to the economy might ease retailers’ Christmas pain. But there is a long way to go, even if lenders do start lending again.

Hold steady but do not rush to put new money into the equity market just yet. Switch to bonds, keep liquid and support your local retailer this Christmas.

Verdict: Amber. Do not rush into equities.

Jason McGuigan, partner, Critchleys Financial Planning

What a turbulent few months – and it looks as though stock markets will continue to be volatile. We have lived through an unprecedented period in investment history. In addition to equity price falls, we have also seen falling commercial property prices, falling commodity prices and falling interest rates.

Market tactics: What does the future hold?
By Tim Cooper | 00:01:00 | 21 December 2008

Bond investors have struggled as well in the light of inflation/deflationary concerns. Gilts have held up well, but more for irrational ‘flight to safety’ reasons than for true investment reasons.

For the coming months equities are still a good bet, based on current valuations but continued volatility must be accepted. Gilts will still be worthy of consideration, although we prefer short-dated gilts. Commercial property assets should continue to form part of a structured portfolio, along with commodities, but going back into these markets is still a little way off.

Verdict: Amber. Expect volatility to continue.

Jon Cobb, director, Trinity Wealth Management

All over the world fund managers are talking of ‘compelling value’ but the danger is that funds become ‘compelling deep value’ first!

Fixed interest certainly looks attractive and, with corporate bonds spreads at such wide levels, I would expect a positive return from the UK Corporate Bond sector. But I would buy an active fund because stock selection could be crucial.

A portfolio cannot avoid exposure to UK equities, but I remain extremely negative on both the UK All Companies and the UK Equity Income sectors. Earnings will continue to be down-rated and dividends cut. We are close to the bottom, but where will the growth come from?

Exposure to UK equity would be more profitable through a fund that has the ability to short the market. The Absolute Return sector should therefore create some positive returns from those funds that apply a long/short strategy.

Fund manager’s view
Jeremy Thomas, manager, Allianz RCM UK Growth fund

The credit crisis and recession have driven corporate bond markets to extremely attractive yields that, in some areas, are beginning to price in a level of defaults not seen since the 1930s.

The general financial and insurance sectors will benefit from an improvement in sentiment in the corporate bond market. The cyclical weakness in the oil price is beginning to throw up many opportunities in the oil and oil services sector.

I would continue to avoid stocks in the quoted property sector, which history suggests does not perform well until commercial property prices trough, something I do not expect to happen until 2010. The food retail sector is also likely to struggle as food price inflation turns to deflation and price competition rises in 2009.

Equity markets are now compelling value for long-term investors. While share prices will continue to be volatile, the stage is set for a meaningful rally in markets over the coming months.

> stock-trading

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Post Wed Dec 09, 2009 4:09 pm   Reply with quote      

hope that period of financial instability ends with this end of year 2009.hope best for 2010 Forum Index - Share Club -Postings for UK investment related issues - Credit crunch bear market - When will shares recover in 2009 - Reply to topic


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