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Opportunities missed will cost if investors once again miss the market rally.
Fisher Investments has published its third quarter 2003 Stock Market Outlook, revealing its belief that the rest of the year should be more favourable for investors and that analyses predicting poor equity returns are flawed, essentially preventing investors from exploiting current market conditions.
Bullish in outlook, Fisher Investments believes that there will undoubtedly be corrections as the rally matures, but investors should take comfort that these simply contribute to the “wall of worry” characteristic of young bull markets.
However, far from denigrating the role of negative commentators Fisher Investments believes sceptics are essential in any upturn. As such, bears incrementally become ‘believers’ - they feed the young bull by increasing stock demand – therefore encouraging market confidence. Indeed, as the report states “trouble usually starts when there are no more sceptics.”
Despite the second quarter of 2003 producing lacklustre economic data, demand for equities rebounded providing evidence of how the market moves in anticipation of future economic events by acting as a discounter. Fisher Investments cites the three-year bear market combined with today’s low interest rates as fuel for the new bull market, and feels that current conditions are capable of delivering an enormous equity risk premium over the coming years – an opportunity it is encouraging individual investors to exploit.
Richard Fellows, Managing Director of Fisher Investments Europe said: “A young bull market creates a ‘whether to invest’ dilemma in retail investors and this typically stems from fear and misunderstanding of the nature of market risk. This caution results in trend following, creating hugely unbalanced portfolios with basically no strategy. We are confident conditions are highly favourable and strongly encourage investors to re-assess their investment strategy in light of this.”
Fisher Investments identified seven core reasons in Q2 2003 why, in its opinion, demand for equity securities would increase - helping to rear the young bull:
1) Interest rates will remain lower than expected
• The US, UK and Eurozone are unlikely to raise interest rates – bullish for stock in a relative value sense
2) Central bank induced liquidity will bolster capital markets
• The US Federal and European Central banks are both growing money at 10% with the Bank of England accelerating money growth to more than 9% (Japan contrasts this, reducing money by 4%)
3) Pension Fund deficits will spur increased demand for securities
• Fisher Investments believes that the cash contributions required by under-funded schemes will represent a direct increase in the demand for equities
4) Current geo-political concerns will ease, allowing risk aversion to dwindle
• The economic costs of rebuilding Iraq are not large enough to have a material negative impact
• Israel / Palestine is unlikely to be resolved in any meaningful way in 2003
• Iran, North Korea and Syria are unlikely targets of military intervention in 2003
5) The fervour for increased market regulation will decrease
• Judge Milton Pollack siding with Merrill Lynch and scolding investors for naïveté referring to them as ‘high-risk’ speculators sets an important precedent for the assignment of personal responsibility
• The clamour for regulatory remedies to the ‘crisis in corporate confidence’ appears to have subsided (consistent with an earlier Fisher prediction)6) George Bush is in his Third Year meaning a non-obstructive legislative agenda
7) Relative valuations remain compelling
Richard Fellows commented: “The danger with current commentary is that retail investors will once again buy at a peak inevitably leading to profit chasing and a permanently reactive strategy that can at best only preserve capital value. Risk is obligatory with equity investment and asset managers are indebted to the individuals that have invested with them to help them exploit opportunities when they appear.”
Download a pdf version of the press release here.
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