BENGALURU (Reuters) - Global stock markets will at best only recoup losses in 2019 from the sell-off late in 2018, according to analysts polled by Reuters, who reckon the risk is skewed more toward a decline in mid-year.
Optimism among equity strategists has diminished after the 2018 rout, which left it the worst year for most markets since the global financial crisis.
The Feb. 12-27 Reuters polls of over 200 equity strategists, analysts and fund managers from around the world is the latest in a series of surveys over the past year in which respondents markedly lowered their forecasts for global stocks.
That view is driven by threats ranging from the U.S.-China trade war to slowing global growth and tightening liquidity.
“There are significant risks to the outlook for 2019,” noted David Kelly, chief global strategist at JP Morgan Asset Management. “2018 has been a difficult year for investors as long bull markets ... have encountered strong headwinds, and international stocks have underperformed following a very strong 2017. Shifting fundamentals in an aging expansion have certainly played their part in slowing investment returns.”
About 65 percent of more than 90 respondents who answered an additional question said the risk for global stocks by mid-year was for a sharp fall. The remaining said the opposite.
That echoes findings from a separate Reuters poll of global fund managers, which showed a cut to recommendations for equity allocations to the lowest since March 2017.
“Risks for global stocks are skewed to a sharp fall as a global economic slowdown gathers pace, the current business cycle is fairly old and global central banks have limited firepower to support weakening economies,” said Vyacheslav Smolyaninov, chief equity strategist at BCS Global Markets.
Nine of 16 indexes were forecast to trade higher by the end of 2019, but analysts had predicted just three months ago that all but one of them would rise. Forecasts were raised for only three of the 16 from the previous poll.
Of those indexes forecast to gain, five were predicted to rise sharply. The rest were expected only to recoup their 2018 losses, even though some major indexes had their best start to a year in over three decades.
“At least for now, all the good news is pretty much priced in here. I’m not looking for markets to really increase here by any significant amount,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
After the worst annual performance since 2015 and the worst December since the Great Depression, the S&P 500 gained nearly 8 percent in January, its best start in over 32 years.
But in the survey, the S&P 500 was forecast to make only modest gains. The end-2019 view is about where strategists polled just six months ago thought the index would be by the end of last year.
“We expect 2019 to be stormy, since we are still in the late phase of the economic cycle. This means that global growth will gradually slow down and that the earnings-generating ability will be challenged,” said Fredrik Oberg, chief investment officer at SEB.
Toronto’s stock market was expected to make tepid gains over the rest of the year after surging since January.
European shares were forecast to end 2019 roughly at their current level, as political risks and slowing growth keep a tight lid on their upward potential.
While earnings growth estimates for 2019 have been reduced across regions, equity strategists were almost equally split on whether earnings growth in their domestic markets had already peaked or would soon, or whether it would improve.
“The near-term outlook for international equities is perhaps even more uncertain than for U.S. stocks. Recent volatility, particularly around mounting trade tensions, has left international equities trading at a deep discount to both the U.S. and history,” added JP Morgan’s Kelly.
“But the question of whether or not this valuation advantage will result in relatively better returns in 2019 is a close call.”
Brazilian stocks were forecast to rise, driven by investor faith in the new Brazilian government’s economic and fiscal reforms. Mexican stocks will make almost 11 percent gains.
But the outlook for Indian stocks will depend on the military conflict with Pakistan and national elections in May, with market experts saying a majority win for the ruling party would be the most favorable outcome for equities.
(Other stories from the Reuters global stock markets poll:)
Additional reporting and polling by correspondents in Tokyo, London, Milan, Moscow, New York, Brasilia, Sao Paulo, Mexico City and Toronto; editing by Larry King