Emerging stock markets will easily outpace gains seen this year for rich world counterparts, where there are signs of waning enthusiasm after 2009's historic rally, Reuters polls showed on Wednesday. All of the world's major stock indexes are expected to finish the year higher than current levels, according to the surveys which tapped the views of more than 300 investment strategists.
Many respondents cited the timing of expected interest rate rises from record lows as a key variable. Central banks in the United States, eurozone and Britain are all expected to raise interest rates by the end of the year according to the latest Reuters polls. Fears China will take drastic action to cool its economy have helped Shanghai and Hong Kong to rank among the worst performing stock markets so far this year.
Still, both are expected to finish 2010 near the top of a league table of gainers, alongside emerging market peers Brazil and star performer Russia, whose stock index is seen rising some 20 percent from Tuesday's close by the end of this year. "We are upbeat about Asian and emerging markets, but debt will damage European and US markets by the end of the year. In the next three months they look good," said David Buik at brokerage BGC Partners in London.
Median forecasts from the polls showed rises in developed world stock markets would be much more muted, with only Australia's ASX expected to post a double-digit percentage point expansion from here to year end. Strategists largely downgraded their mid- and end-year predictions for major continental European indexes, coinciding with the escalation of Greek's debt crisis over the last three months.
The range of predictions for the end of 2010 narrowed for the vast majority of indexes compared with December's polls, reflecting a growing realism among forecasters about the global recovery. Stock markets emaciated by the capital flight to safer investments during the worst of the global financial crisis rebounded ferociously last year. Most indexes rose 50 percent or more, and some, like Russia's RTS, rocketed 120 percent.
While economists tempered their mid-2010 forecasts for more than half of the stock markets surveyed, the end-of-year predictions in the latest surveys would still be remarkable if realised. Forecasters saw nothing in the Brazilian economy that could wreck the ascendancy of its Bovespa index, seen gaining 16.5 percent from now to the close of 2010, and India's BSE Sensex is expected to cancel out its slight loss so far this year with a 10.7 percent rise from current levels.
While G7 countries will lag emerging stars, optimism about improving an improving jobs market and corporate profits should drive US stocks to a second straight year of growth, outperforming European rivals. The S&P 500 index is seen making a 10 percent gain over the whole of 2010, easily outperforming its European rivals.
"Cyclical sectors especially are seeing earnings surprises, as compared to less cyclical sectors, and we will continue to see this with economic improvements," said Jonathan Golub, chief US equity strategist at UBS in New York. Japan's Nikkei was seen as the worst performing major index from now until the year end with a 1.4 percent gain. Germany's benchmark DAX index should finish the year with modest gains, but below levels expected for the middle of 2010.
"The market will recover further on liquidity and hopes for further economic improvement," said Frank Schneider, a strategist at Alpha Trading. "But recovery in real demand will be worse than expected and markets will be disappointed later this year."