Stocks around the world set to rally to year end

Major stock indexes across the world are expected to put recent setbacks behind them and rally to post gains by the end of the year, according to a Reuters poll of traders, fund managers and strategists.

The predicted gains range from a modest 1 per cent for Japan’s Nikkei to almost 10 per cent for India’s S&P BSE Sensex benchmark.

The survey was conducted last week before negotiations between Greece and its creditors broke down.


US

The S&P 500 will likely snap out of its tight trading range in the second half of 2015 to end almost 7 per cent higher for the year.

Market reaction to higher interest rates and the response to whether Greece defaults on its debt were cited by many as the main market catalysts for the rest of this year.

The median forecast of nearly 50 strategists showed the S&P 500 rising to 2,202 by year-end.

The target, which is slightly above the median forecast in a poll in March, would represent a 5 per cent gain from Friday’s close of 2,101.49 and a 7 per cent increase from its 2014 close.

Britain

Britain’s benchmark FTSE 100 equity index is expected to gain about 5 per cent from now until the end of the year and set a new record high next year.

The FTSE 100 hit a peak of 7,122.74 points in April and held close to that level in May as investors welcomed an unexpectedly decisive win for the Conservative party in the British election.

It has since stalled and lost ground, however, due partly to persistent concerns over Greece’s debt problems and expectations of a US interest rate increase this year.

A US rate rise could drive investors from stocks into bonds as higher rates typically lift returns on US treasuries.

The poll gave a median forecast for the FTSE to end this year at 7,100 points and then set a new record high of 7,323 points by the middle of 2016.

Among top global investment banks, Goldman Sachs forecast the FTSE would end this year at 6,600 points. Others were more bullish, with UBS forecasting an end-2015 target of 7,200 points while HSBC predicted 7,100 points.

Many traders said the European Central Bank’s quantitative easing economic stimulus would cushion the FTSE and European stock markets from Greece, whose debt difficulties could lead to the country’s exit from the euro zone.

Europe

Top European stocks will rise from current levels by the end of 2015 but fail to hit fresh highs for the year.

The results suggest European stock markets will avoid a Greece-related meltdown but not rediscover the investor enthusiasm that followed the ECB’s launch of a bond-buying scheme to spur economic growth at the start of this year.

European equities are currently trading at about seven-year highs, even after recent choppy trading driven by Greek jitters and a spillover of volatility from fixed income markets.

Investors say the next leg-up will depend on companies’ ability to deliver earnings growth as the economic backdrop improves.

The poll gave a median forecast for the pan-European Stoxx 600 Europe index to end 2015 at 415 points. That would represent gains of approximately 5 per cent from Friday’s 396.85 close and almost match an all-time high of 415.18, hit in April.

The euro zone EuroStoxx 50 index is expected to end the year at 3,794 points, up 5 per cent from Friday’s close of 3,621.37 but short of 2015 highs.

The picture is broadly similar for key benchmarks in Frankfurt, Paris and London. The DAX is projected to end at 12,000 points, short of its record 12,390.75 hit in April.

HSBC and Barclays expected top euro zone stocks to set new records this year, while Goldman Sachs was less optimistic with below median predictions.

“We expect euro-zone earnings to surprise significantly to the upside this year, helped by an improving business cycle and the strongest currency tailwind since the inception of the euro,” said Robert Parkes, a strategist at HSBC.

Japan

The Nikkei share average is forecast to stay resilient this year, hovering at levels last reached in late 1996. But gains will be capped as investors remain cautious against a probable US Federal Reserve rise in the interest rates.

The Nikkei is expected to rise to 21,000 by the end of December, according to the median forecast, up just over 1 per cent from Friday’s close of 20,706.15.

Forecasts from equity market strategists for the end of this year ranged from 13,000 to 24,400. By mid-2016, it is expected to reach 22,000, according to the consensus, and the range was 9,000 to 25,000.

The Nikkei touched an 18 and a half year high on expectations company profits will be pushed up by a weak yen and better shareholder returns while corporate governance should also help foreigners’ buying.

But some analysts say all of the positive catalysts may have already been priced into the market this year and most expect global markets to be volatile after a US interest rate rise.

“The Fed’s rate hikes may hit US shares, and when US shares have a correction, the Japanese market will likely get hit as well,” said Ryota Sakagami, chief strategist at SMBC Nikko Securities, who expected the Nikkei to trade at 21,000 at the end of the year.

He added that volatility in emerging markets could be a risk, and investors may be reluctant to put more money into Japanese stocks, which have high exposure to those markets.

Most of the respondents, however, do not expect the index to fall thanks to positive factors in the second half of this year.

“Both US and Japanese economies may peak out by the middle of the next year, with both employment and wages recovering. But for the Japanese market, stock prices should stay high,” said Yoshinori Shigemi, a global market strategist at JP Morgan Asset Management, who expects the Nikkei to hit 23,000 by mid-2016.

India

India’s benchmark stock index, the S&P BSE Sensex, is set to climb this year, although not by as much as forecast three months ago, and it will be up about 18 per cent in a year’s time even if US interest rates rise as expected.

Equity analysts, who are generally bullish on India, forecast the Sensex would reach 30,500 by the end of 2015, below the 32,000 consensus in a similar poll in March.

They forecast a further rise to 32,850 by end-June 2016, up from Tuesday’s close of 28,020.87.

The Indian stock market was among the world’s best performers last year, rising almost 30 per cent.

But after hitting a lifetime high of 30,024.74 in March, the Sensex declined more than 7 per cent.

The absence of promised reforms and fears that a poor monsoon would push up food price inflation drove foreign institutional investors to sell.

Strategists were split over whether these investors would continue to pull out if the Fed, as expected, raised interest rates later in the year. Ten of 18 strategists said they would.

“You might see a reaction to the event [of a rate increase], but beyond that the market will come back,” said Deven Choksey, the chief executive at KR Choksey, an investment firm in Mumbai.

Russia

Russian shares will have barely moved from current levels at the end of 2015 as a weaker rouble and prolonged western sanctions over the Ukraine crisis continue to weigh on stocks.

The dollar-denominated RTS share index, which closed at 943.01 points on Friday, is up 19 per cent so far this year.

But the European Union extended economic sanctions on Russia for six months last week and a central bank plan to replenish its reserves by buying foreign currency has weakened the rouble.

“Market performance in 2015 will hinge on the outcome of … three key factors: oil price, sanctions and the rouble,” said Gazprombank analyst Erik DePoy. “In the negative case with oil averaging $60 a barrel, the rouble at 57 [to the dollar] and additional sanctions, we see downside of about 30 per cent.”

The median forecast showed the RTS would end the year at 944 points.

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