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Outlook for Global Stocks in the Second Half of the Year
Bullish on Europe, China, and Japan
Five of the 15 market strategists polled expect global markets to fall, while another five believe they will outperform U.S. markets. The remaining strategists said it depends on market conditions, such as the possibility of a U.S. recession. Those who expect global stocks to beat the U.S. are most bullish on the U.K., Europe, and Japan. Christian Abuide, head of asset allocation at Lombard Odier, prefers non-U.S. stock markets, including Europe, China, and Japan, due to their improving growth prospects and lower valuations. Karim Chedid, head of investment strategy for BlackRock's iShares division in EMEA, believes Japanese stocks have room to grow, despite potential headwinds.
International Bull Market
Liz Ann Sonders, chief investment strategist at Charles Schwab, points out that the U.S. bull market is driven by only a few stocks, making the international bull market look much stronger. She explains that the greater the number of stocks contributing to market growth, the more stable the market becomes. This indicates that the average international stock continues to outpace the average U.S. stock.
Bearish on Europe
Andreas Bruckner, European equity strategist at BofA Global Research, predicts a 15% decline in Europe's Stoxx 600 by the end of the year. Mark Haefele, CIO of UBS Global Wealth Management, also expects European markets to decline, with the Stoxx 50 losing around 2% and the MSCI All Country World index falling by about 5%. Bruckner cites a deteriorating U.S. credit cycle as the main reason for weaker growth and underperformance in Europe.
Roger Lee, head of U.K. equity strategy at Investec, states that the outcome for various markets depends on the U.S. economy. If a U.S. recession does not materialize and inflation remains higher, highly valued growth stocks may fall while value stocks could rise. This scenario could pressure indices heavily exposed to high-value growth stocks, but be positive for the U.K. market, which is dominated by value or cyclical stocks. European markets may experience a more neutral outcome due to a mix of highly valued and cyclical stocks.
How to Position
UBS' Haefele suggests a balancing act for investors. While there is still potential for stock gains, it is limited. He advises focusing on quality bonds, equity laggards, and positioning for dollar weakness. Frederique Carrier, head of investment strategy at RBC Wealth Management, recommends restricting individual stock selections to companies with resilient balance sheets, sustainable dividends, and business models that are not overly sensitive to economic cycles.
The Impact on New Businesses
Considering the outlook for global stocks in the second half of the year, it is evident that there is a divergence of opinions among market strategists. While some expect global markets to fall, others predict outperformance compared to U.S. markets. These differing forecasts highlight the uncertainty and complexity of the current economic landscape.
For new businesses, this outlook implies both challenges and opportunities. The bullish sentiment towards Europe, China, and Japan suggests potential growth prospects in these regions. As these markets show improving growth prospects and lower valuations, they could provide favorable conditions for new businesses to establish and expand their operations.
On the other hand, the bearish outlook for Europe indicates potential headwinds that may impact new businesses looking to enter or operate in this market. The projected decline in European markets, attributed to a deteriorating U.S. credit cycle, emphasizes the need for caution and strategic planning.
The uncertain outlook for various markets, dependent on the U.S. economy and factors such as inflation and market valuation, further adds to the complexity. New businesses must carefully assess the potential impact of these conditions on their operations and adapt their strategies accordingly.
To navigate this landscape, UBS suggests a balancing act for investors, focusing on quality bonds, equity laggards, and positioning for dollar weakness. Similarly, RBC Wealth Management recommends restricting stock selections to companies with resilient balance sheets, sustainable dividends, and business models that are not overly sensitive to economic cycles. These strategies can be valuable for new businesses as they seek to weather the market fluctuations and position themselves for success.
In conclusion, while the outlook for global stocks is uncertain, new businesses should approach this environment with a combination of caution and opportunism. By carefully analyzing market conditions, aligning strategies with potential growth areas, and implementing prudent investment practices, new businesses can navigate the ever-changing landscape and position themselves for long-term success.
Article First Published at: https://www.cnbc.com/2023/07/19/15-strategists-predict-where-global-stocks-will-end-2023.html