Credit Suisse says its “clients are
close to being as bearish on equities as we can remember.”
In a downbeat edition of its “Global
Equity Strategy” series, the Swiss bank outlines what it sees as the “new”
consensus in global markets.
The main takeaway? “We have come
across almost no one who seems to have outperformed or made decent returns this
year,” says analyst Andrew Garthwaite and his team.
Just 29 out of 242 UK-focused funds
tracked by the Investment Association beat the performance of the FTSE All
Share index, Credit Suisse says. That’s terrible. Investors want fund managers
to outperform the market otherwise they may as well just stick the cash in a
tracker fund.
The bank says: “We have never had so
many client meetings starting with statements such as ‘we are totally lost’.”
Credit Suisse has been doing
marketing trips in the US, Europe, and South Africa, and it has found “the list
of client worries very long.” It’s not just Brexit — nothing seems to make
sense to investors anymore.
Here’s a summary of what they’re are
worried about: workers fighting back in the US, hitting earnings; equities
still not cheap; US growth mixed; China still screwed; central banks’ empty
policy cupboards; politics being nuts (protectionism, anti-immigration moves,
anti-corporate feeling); and technology running rampant and destroying business
models.
If you follow the news then you’re
probably nodding your head right now — all of those are fair points and all of
them make investing in a company right now look like a fool’s errand.
Despite this, Credit Suisse is
telling its clients to take a second look at stocks, mainly because the
alternatives aren’t much better.
“In our judgment, government bonds,
corporate bonds and real estate appear very expensive in most parts of the
world,” the bank says. “As a result, although the cost of equity is a little lower
than average, it is still within its normal range and unusually high relative
to the discount rate on other instruments.”
The bank thinks liquidity levels and
fiscal stimulus could also drive investors back into equities as people look
for somewhere to shove their cash and look for a hedge against falling bond
yields. As a result, it reckon stock prices should go up in the medium term
