Expected events do not move stock markets, surprises do.
In the face of a heightened sense of vulnerability, investors should take comfort in the fact that stocks are bought and sold based on what is expected to happen: future events become discounted in markets as though they have already happened.
Fisher Investments, a discretionary investment manager seeks to identify factors not widely recognised by the market and therefore likely to have a greater influence on demand for equities. The Company has recognised seven bullish factors and underappreciated conditions which will drive returns and whilst other investment houses are more cautious, Fisher Investments believes that as a result the MSCI World index will end 2004 up 20%.
The Fisher Investments seven surprises of 2004
1. GDP growth and corporate earnings will exceed expectations
Accommodative monetary policy, lower taxes and low inflation will drive growth in the US, which in turn will strengthen the global economy. Increased corporate earnings globally will make equities more attractive.
2. Short term interest rates will remain low, yield curves steep
Central banks will be reluctant to raise interest rates while the economic recovery is young – this is particularly so in the US where the Federal Reserve will be loathe to do so in an election year.
3. US Federal budget deficit will fall and state budgets will be wiped out
US government deficits will be significantly relieved in 2004 as strong economic growth increases the tax base. There will therefore be no need to raise taxes or reduce spending. The easing of budget deficits will go a long way to relieve investor anxiety.
4. The US dollar will strengthen modestly
Given that Fisher Investments believes that the US economy will surpass expectations, the US dollar will rally as international investors buy US assets. China’s central bank will buy US Treasury bonds to keep their currency pinned to the dollar, while Japan and other Asian central banks will buy US bonds to strengthen the dollar and protect their exports.
5. The US mutual fund industry will pick up as anxiety eases
A demand for accountability from investors over stock market losses has led politicians eager to curry favour, to push for greater regulation. The latest example of this being market timing in the mutual fund industry. As this cycle of retribution seeking draws to an end, investors will gain confidence and once again look to mutual funds, increasing the demand for equities.
6. Bush will win the US presidential elections convincingly
Despite John Kerry’s recent successes at the polls, Bush still enjoys a 50% approval rating in the US, and no President has failed to win re-election with such an approval rate in an election year. Historically, when a president is re-elected the US stock market performs very well – the majority of the electorate are pleased that they have backed a winner and the re-elected president is a known entity.
7. Two more countries will disclose and end WMD programmes
Progress made in Iraq and Libya and increased international determination to root out the tools of international terrorism through the Proliferation Security Initiative will lead at least two rogue states to admit to a programme of developing weapons of mass destruction, diminishing the risk such weapons fall into the hands of terrorists. This should lead to diminished risk aversion and higher stock prices.
Richard Fellows, Managing Director of Fisher Investments Europe said, “Only unknown information influences market direction which is why investing in equities can be an imprecise science. To beat the market you must recognise and act on information that no one else has considered. We believe that these seven surprises have not yet been discounted and will sustain the bull market through 2004.”
Download a pdf version of this press release.
|