A tentatively improving global economy and plentiful central bank cash should foster gains for the world's major stock markets next year, a Reuters poll of more than 250 analysts showed. World stocks have risen this year after a disastrous showing in 2011, and that trend should continue into the new year, led by Brazil, Russia, India and China.
Although there have been some signs of late that global growth is picking up, the poll's respondents pointed to some sizeable risks to the outlook from big Western economies. First and foremost, there is the US "fiscal cliff", an automatic budget tightening at the end of the year, that could tip the world's biggest economy back into recession if politicians can't strike a deal to avert it.
There is also Europe's entrenched economic weakness and the ongoing risk the euro zone's smouldering sovereign debt crisis will flare up again. Still, the general feeling was that the next year ought to be better than this one. "This time last year, the risks to global growth were to the downside as the European debt crisis, China hard landing fears and the US 'fiscal cliff' clouded the economic outlook," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
"For 2013, we expect the resolution of fiscal policy issues, another year of accommodative central bank actions and improving corporate profits to skew the macro and market risks to the upside." The survey was conducted over the past week but before the US Federal Reserve announced a new round of monetary stimulus on Wednesday. Many respondents cited expectations of central bank liquidity flushing through global financial markets as a reason to predict gains.
Asian stocks in particular should lead the way over the next year, supplanting Russia, which has recently performed best. The Shanghai Composite, the poorest performer this year among the poll's 18 indexes, is forecast to perform best, gaining just over 17 percent by the end of next year from Wednesday's close.
However, analysts in previous polls have long expected Chinese stocks to start rocketing soon. "Economic fundamentals will be better next year, listed companies from the financial and industrial sectors will see their growth accelerate, and monetary policy may relax," said Zheshang Securities analyst Wang Weijun, predicting a "positive shake-up" for the market next year.
Chinese and Korean stocks have the lowest 12-month forward price-earnings ratios of around 8.5, further underlining their favoured status as the top performers for next year. Shanghai will be followed closely by India's BSE Sensex and Japan's Nikkei, each gaining close to 15 percent. Germany's DAX has enjoyed the best performance so far in 2012, with a 29 percent gain up to Wednesday's close.
While a repeat of that looks very unlikely next year, major Western stock markets should do well. Italy's FT/MIB is seen performing strongly, with a gain of about 11 percent to end-2013, followed by the pan-European DJ Euro Stoxx 50 and France's CAC 40. "We expect some stabilisation in euro zone activity," said J.P. Morgan European equity strategist Emmanuel Cau, adding that because others were not as optimistic, any improvement could lead to a sharp rally in European equities.