[ad_1]
An increasing number of global fund managers are gung-ho on revival in corporate earnings. Around 69% of respondents see global profits improving over the next 12-months, showed Bank of America Merrill Lynch’s latest survey. This is the highest level since December 2009, said the survey report.
A couple of factors seems to be fuelling this optimism.
One, for the first time since February more respondents said the global economy is in an early-cycle phase rather than a recession, showed the survey. According to Goldman Sachs, usually, improvement in economic outlook trickles down to earnings estimates. “Our economists have recently made upward revisions to their economic forecasts and it is likely that analysts’ expectations will follow. This is typically what we see in the early stages of a recovery from a bear market,” it said in a report on 7 September.
Second, quicker availability of a vaccine for coronavirus. Majority of respondents expect a credible vaccine for covi-19 to be announced by 30 January 2021. That said, global fund managers still see a second wave of coronavirus infections as the biggest tail risk.
So, this optimism on revival in corporate earnings should be taken with a dose of salt. Global equities have priced-in a scenario of ultra-accommodative monetary policy for a long period to support economic growth. Thus, making market participants ignorant of downside risks.
In his blog dated 15 September, Lance Roberts, chief investment strategists at US-based Real Investment Advice, says, “Investors have gone “all in” with a disregard for caution.” Lance is of the view that the current market momentum is driven by the fear of missing 0ut factor, which has overridden logic.
“Investors are counting on a vaccine to restore the economy to its previous strength fully. While the economy is indeed recovering, along with employment, it will still likely fall well short of pre-pandemic levels stifling future earnings growth and revenues. Investors are paying exceedingly high valuations based on a full earnings recovery, which is unlikely to be the case.”
Bob Doll, senior portfolio strategist, Nuveen Asset Management said, while central bank policy remains extremely supportive of equities, investors should consider a number of downside risks.
“Commodity markets may also be showing some cracks. Oil prices have sunk recently following their sharp rebound from the initial pandemic-induced shock, and gold and industrial metal prices appear due for a pullback. Additionally, we still think equity prices reflect a more positive corporate earnings backdrop than we think is likely,” Doll said in a note to clients on 14 September.
[ad_2]
Source link