Most emerging stock markets will finish 2010 with much stronger gains than their rich world counterparts, according to Reuters polls that showed only Japanese and Chinese bourses ending the year in double-digit slumps.
Faced with a likely cooling of the global economic recovery and stringent budget austerity measures taking effect in Europe, the more than 350 analysts surveyed by Reuters bumped down forecasts for most major stock markets compared with June.
Nowhere was this more apparent than in Japan. Conducted before Japan's currency intervention on Wednesday, the poll exposed the strong yen's stranglehold on Nikkei-listed businesses in brutal fashion. In June, analysts expected the Nikkei to end this year 6.7 percent higher than its 2009 closing level. Now they see it finishing 2010 almost 12 percent in the red.
While the likes of Brazil, India and Russia will power ahead of others, the survey showed Wall Street faring better than most of its rich world peers, despite lingering worries over the strength of the US economic recovery. "Some of the economic data that has come out has not removed the fear of double-dip (recession) but has certainly dissipated it to a significant degree," said Tobias Levkovich, chief US equity strategist at Citigroup in New York.
Cheered by some promising US unemployment and trade deficit figures last week, forecasters expect the Standard & Poor's 500 to gain more than 6 percent between Wednesday's close and the year-end, and the Dow Jones Industrial Average more than 5 percent. European indexes will ascend slowly through to the end of the year, as will Australian and Canadian shares, although the Italian FTSE MIB still looks likely to end 2010 in negative territory.
Britain's FTSE 100, something of a straggler so far this year, could bounce around 8 percent by mid-2011 thanks to support from overseas earnings. And despite the dire full-year outlook for Japan's Nikkei in 2010, it too will rebound and at a stronger pace than any of its rich-world counterparts. Analysts forecast gains of around 11 percent from the end of 2010 through to mid-2011.
"The market will likely remain under pressure until next spring. I expect the benchmark to hit a trough in October before companies report their first-half earnings results," said Masahiro Ayukai, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.
CHINA LAGGING:
Emerging stock indexes - which suffered terribly in the aftermath of Lehman Brothers' collapse two years ago - have far outperformed their rich-world counterparts, where trading volumes remain historically thin. Chinese stocks are a big exception to this trend. The Shanghai Composite Index, which soared 80 percent in 2009, has shed about a fifth of its value this year.
Chinese companies have suffered the brunt of the government's attempts to cool an overheating economy, notably with strict rules to control a rampant real estate sector and tightening liquidity.
While Shanghai stocks will likely end 2010 more than 22 percent in the red, the poll showed at least a partial recouping of these losses by mid-2011.
"The index has little space to rise against the backdrop of the severe property policy, but the low valuations of large cap shares are a supportive factor going forward," said Huang Xiangbin, analyst at Cinda Securities in Beijing. Hong Kong's Hang Seng index and South Korea's KOPSI look more likely to benefit from China's fast economic growth, although worries about demand for personal computers will hurt Taiwan's tech-heavy stock market. Russia's RTS offers the most lucrative returns from now until the end of the year, the poll showed, but also some of the riskiest.
Strategists said the RTS could gain more than 18 percent from now until the year's end and 33 percent by mid-2011, although they stressed that the Russian market was at the mercy of external forces and a volatile oil market.
The ascent of the BSE Sensex of India, a burgeoning global economic power, should continue apace after a slow end to this year. While the poll showed it growing only 3 percent between now and the end of 2010, it should rise 11 percent by mid-2011. "The long-term story definitely holds good with improving macroeconomic fundamentals," said Gajendra Nagpal, Chief Executive of Unicon Financial, pointing to robust summer monsoon rains and accelerating economic growth.
The South African JSE Top-40 looks likely to rival Indian growth through to the middle of next year, with Brazil's Bovespa not far behind. "Worries (abroad) that were leaving the market uneasy have receded a bit. That leaves investors free to focus on Brazil's internal factors, including its fundamentals," said Paulo Esteves, chief analyst with Gradual Investimentos.
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