Tuesday, March 12, 2013

If we are in a bull market, what's next?

THE MSCI World Index of developed market equities are now almost exactly 20% from the October 2011 lows, which, according to some definitions, means that we are now in a bull market.

It also means that the equity developed countries almost at the level where they tumbled since August 2011 after S & P's decision to downgrade their U.S. debt. We see that the bull market is really about valuations increase and prices. But an important question remains: where the market will go next?

The MSCI World Index currently trades at price-earnings ratio of about 12 times earnings estimates. This is the 10-year average of several moving more than 14 times.

The scope of the MSCI World, the United States and Europe (including the UK), which still stands in terms of valuation discounts to their historical average.

Equity market skeptics suggest that earnings estimates are still not conclusive, suggests that analysts are now really wrong with their current estimated market trading profitability of the company's future in fact much closer to the valuation of the long-term trend of the number of headline shows.

It is definitely hard to resist. In recent years, the analyst community has worked hard to earn a reputation for inaccuracy.

We can not always say that analysts' forecasts tend to be right this time. In fact, we tend to agree that the company's revenue growth forecasts for Europe still looks optimistic for 2012, even during the current income seems to help to improve it.

All the same, we still believe that equity valuations in the trading market develops between one and 1.5 standard deviations below the 10-year trend, there is room for a little one analyst and equity markets are rising even more.

This assertion is established at some point. We repeated pink-cheeked health of the corporate sector in general. The balance will continue to look for efficient related to history, and a wide margin and, in our view, sustainable.

Moreover, the current macro backdrop is starting to look very positive for equities. This is not to say the threat is still out there, but a steady recovery of the U.S. and evidence of stabilization in the euro zone helped, near the side of generosity unprecedented on the part of the world's major banks are central.

In the case of a threat, Greek saga continues, in addition to the upcoming French election, the two that come to mind. Prospects poll leader Francois Hollande is now trying to turn his campaign rhetoric into protectionist policies that are not likely to help investors to live, while even Greece did not look likely to get the next phase of EU support, it seems unlikely that we have heard the last of their problems.

However, we still believe that the risk is skewed benefits, more volatility can certainly not be ruled out.

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