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Johannesburg - Despite the prevailing gloom, 2009 is increasingly unlikely to be a poor year for equity markets.
This is the view of Investec strategist Max King.
King said: "Among the investment community, the sense of crisis last autumn has given way to relentless gloom."
He points to the "January barometer" as an indicator the bank uses to predict equity markets. According to the barometer, what happens in January is indicative of what to expect for the rest of the year.
He said: "It has an excellent long-term record but if it is valid this year, investors would appear to be in for another poor year."
Equity markets across the globe have swiftly unravelled since October 2008 as major US financial institutions ran into trouble because of problems in the housing and consumer market.
This has seen enormous value destroyed and punters are worried about stepping back into the market despite the confidence displayed by investors such as Warren Buffett, who have been buying assets despite the market turmoil.
According to King, a rapid succession of fiscal, monetary and financial packages is leading to increasing cynicism. "They aren't working, they can't work or they have political rather than economic objectives. Those who acknowledge market upside see it as only a bear market rally.
"The prevailing view on the outlook for economies and corporate earnings is catastrophically bearish, expecting depression rather than recession, and permanent rather than temporary falls in profits."
While on an historical basis equities may appear cheap, investors are concerned that further job losses in major corporates will put pressure on heavyweight economies in the US and Europe.
King said: "The risk of new lows will remain until there is evidence of economic green shoots in the US, and of a reduction in the downward momentum of earnings.
"What we can say with increasing certainty is that such a setback should represent a once-in-a-generation buying opportunity, so much so that it may not be worth the risk of missing out by waiting for a setback that probably won't happen."
'Worse lies ahead'
Supporting King's view is research from the annual Barclays Equity Gilt Study, written by the highly-regarded Tim Bond.
According to the Investec strategist, Bond's research points out that equity returns over the past decade have been among the worst on record. In the US market it was the fourth-worst decade in the last 83 years, returning only -0.3% annualised, and only the decades ending in 1937, 1938 and 1939 were worse.
In the UK, the 10-year return of 1.05% was slightly ahead of the 1964-74 return of 1.02%, which was the worst 10-year return for the UK market in the last 110 years.
By the late 1990s the Barclays model, based on long-term metrics, was projecting negative returns for US equities over the next 10 years for the first time since the model's inception in 1935 - exactly as has happened. Over the next 10 years, the model projects an annual return of 12%, enough to make a portfolio more than treble in value.
Investors, however, have heard similar comments from a number of asset managers and will be taking such upbeat comments with a pinch of salt as they continue to watch their portfolios decline.
Nouriel Roubini, the economics professor credited with predicting the financial crisis, is less upbeat about the prospects for 2009.
Roubini recently spoke at the World Economic Forum in Davos and warned that "worse lies ahead". He cautioned that banks and other financial institutions could well suffer bigger credit losses and require state takeovers, and that the world economy will keep shrinking throughout 2009.
- Fin24.com
