Poll: Global stock markets still on a roll, led by Europe, Asia

BENGALURU/LONDON (Reuters) – Global stock-market indexes are set for more gains by the end of this year, with notable optimism in the latest Reuters poll driven by an economic revival in Europe as well as bright prospects for much of Asia.

All but one of the 21 indexes polled from Toronto to Tokyo are expected to climb by varying degrees, although concerns are building about rising interest rates and how expensive shares look after spending most of the past decade going up.

Still, the latest consensus is an upgrade to forecasts made just three months ago and also compared with last December, just after Donald Trump was elected into the White House.

At least 16 of 21 stock indexes polled have already breached the mid-2017 predictions made in March and December.

Many of those indexes are also close to passing even the end-2017 expectations.

Emerging-market stocks broadly are expected to outperform, although the outlook for Europe, too, is particularly bright, standing out from previous global surveys of strategists and fund managers in recent years where it tended to be a laggard.

“Europe remains our favorite area in developed-market equities,” Pioneer Investments head of global asset-allocation research Monica Defend said. “Economic activity is buoyant, the earnings season has been strong, and the positive momentum is expected to continue.”

Over the past five years, all European indexes barring the German DAX have lagged the S&P 500 index. However, expectations are for that to flip, with the European indexes now predicted to outperform Wall Street.

But the poll of around 300 financial professionals from around the globe was taken at the cusp of what appears to be a notable turn in sentiment in financial markets where the US dollar, ascendant for the past several years, is in retreat.

At least 16 of 21 stock indexes polled have already breached the mid-2017 predictions made in March and December

In recent days, economic policy makers appear to be leaning together – in word if not yet in deed – away from policies of the recent past, even thought inflation has made no decisive move higher and even appears to be in a lull.

That was reflected in the latest Reuters poll of bond-market strategists, which showed that optimism about a global inflation pickup has at best plateaued.

But while the US economy does not appear to have stirred from a roughly 2% growth rate, for the moment at least, companies have been performing well. US stocks are expected to rise a bit more in the second half.

However, the expectation Congress will pass into law sweeping tax cuts that Trump promised on the campaign trail and that have underpinned the Wall Street rally since he won the election appears to be fading.

“You can’t make money in the stock market without the consensus forecast for earnings or a big tax cut from Trump,” said Hugh Johnson, the chief investment officer of Hugh Johnson Advisors LLC in Albany, New York. “You have to have one of those two things.”

Federal Reserve Bank of San Francisco President John Williams was even more blunt on his assessment of the risks in an interview earlier this week, saying: “The stock market seems to be running pretty much on fumes.”

Analysts now note that despite relatively good company performance, the most basic measure, price-to-earnings ratios, suggest many stock markets around the world are looking pricey compared with historic measures.

“In a ‘normal’ period, equity analysts are seldom as optimistic as they are at present,” wrote Tim Davis, chief investment strategist at London-based consultancy Fathom. “To us, this means there must still be some optimism about President Trump’s policies priced into equities, even though the dollar and breakevens have reversed their moves and are close to levels seen immediately prior to his election victory.”

In emerging markets, the potential for future growth – so long as the world economy and the financial system keep on an even keel – is more clear.

“Within emerging market equities, Asia remains our preferred region,” Barclays head of investment strategy William Hobbs wrote in a note to clients.

Asian stock-market indexes expected to perform the best from now until the end of the year are those in India, China, South Korea, Japan and Australia.

India’s Sensex index, up 15% already this year, is forecast to hit a record high by year-end.

In Latin America, Mexican stocks are likely to reach a record high by year-end, outshining Brazilian shares as fears over rising trade barriers from the United States abate.