Global equities could fall further: strategist

The Business Times
Published November 19, 2008
Global equities could fall further: strategist
Investors advised to sell risky assets into any rally as volatility will remain high
By CONRAD TAN

A QUICK recovery in stock markets worldwide is most unlikely, the investment head of a private bank in Asia said yesterday.

'It's going to get a lot worse before it gets better,' said Benjamin Pedley, managing director and head of advisory services for LGT Investment Management Asia, a Hong Kong-based unit of LGT Bank.

He was speaking to fund managers in Singapore at a conference organised by Saxo Capital Markets for its clients.

'It's misplaced to be looking for recovery any time before 2010,' said Mr Pedley.

With Japan, Europe and the US - the world's three biggest economies - all sliding into recession, 'the only real hope is that we get some form of stability coming back to financial markets' in the months ahead, he said.

'Everyone is going to move into recession and it's going to take everyone a long time to come out.'

Although share prices worldwide have plunged in recent weeks, they could easily fall further as the extent of the damage to businesses from the economic slump becomes clearer in the coming months.

'Yes, the equity markets have fallen, but no one has any visibility beyond the first quarter of next year,' Mr Pedley said. 'Volatility will remain high. You've got to sell risky assets into any rallies.'

Banking stocks, which have plummeted in recent months, are also unlikely to stage a sharp rebound, he said.

'Bank earnings will be depressed for the next five to 10 years because we are swinging to a more regulated environment.'

Without the benefit of cheap debt to boost their returns, it will be very difficult for banks' earnings to bounce back quickly, he said.

In the US, there is 'still no sign of a bottom' in the housing market, another indication that the economic recession there is likely to drag on for many months, he added. Consumer spending there will continue to fall and 'any fiscal stimulus will likely be saved rather than spent'.

Also, a large number of people nearing retirement in the US who have lost heavily on investments in the stock market are unlikely to put their money back into stocks any time soon.

'The baby-boomer generation - that is a huge segment of the investor market that's not going to get back into the market. They've had enough,' Mr Pedley said.

To them, it won't matter 'whether the price-earnings ratio is low or that the economy is recovering - it's whether you have enough for retirement'.