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Monday, 18 May 2009

Equity markets seen bottom

By Michelle Tay

EQUITY markets have bottomed out and there is growing evidence to support the 'green shoots theory' that is gaining momentum, according to BlackRock's global equities head.

Mr Bob Doll, vice-chairman and chief investment officer of global equities at the investment firm that manages US$1.3 trillion worth of assets, observes that equity markets are up more than 30 per cent since the last low of Mar 6, when the S&P 500 index hit dropped to 666 points.

As such, there is only 'at most a 20 per cent chance' of the S&P falling below that level from now on, he said.

Speaking at a media briefing in the firm's local office, Mr Doll explained there were three factors suggesting the latest bear market rally was different from the four previous abortive ones.

Firstly, the current rally has been marked by strong momentum and expanding volume on the upside, as well as diminishing momentum and volume on the downside.

Secondly, more cyclical areas of the market, such as consumer spending and technology, have been outperforming - trends that tend to occur when recoveries begin.

And thirdly, earnings estimates during the other four rallies had continued to come down, whereas they are currently stabilising or moving slightly higher.

Mr Doll said it was, however, premature to call the start of a new bull market.

Over the coming months, he predicts the United States will outperform Europe and emerging markets will outperform developed ones.

Policy responses to the credit crisis have been stronger and more rapid in the US than in other markets, he noted, with US stocks tending to be less volatile than those in most other markets.

But do not expect a consumption-led recovery, he said, as the US consumer's savings rate has upped from zero to 5 per cent, and may rise further to 8 or 10 per cent.

'There is a prospect that we will witness the start of an economic recovery by the end of the year, and that could lead into subpar, but positive, growth in 2010,' added Mr Doll.

Compared to western economies, he could see 'particular pockets of strength in Asia' driven by the Chinese consumer sector, which is being fuelled by the country's massive stimulus programme.

The property market in Hong Kong is showing signs of stabilisation, thus providing opportunities there, he added.

As for green shoots, Mr Doll said: 'There is evidence for better things coming. But green shoots means the majority of what we're looking at is brown.'

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