Bank of America Merrill Lynch expects the correction in global equities that started on May 2, to continue through the summer there.
However, BofAML maintained that this is just a corrective portion of a long-term bull-run that started on March 9, 2009.
“US policy will remain accommodative until the US labour and real estate markets are in better health,” said Mr Joe Zidle — Head Global Wealth Management Investment Strategy — BofAML.
“The reason why we feel it is a bull market is due to the fact that policy is accommodative, investors are under-allocated to equity which is a contrarian positive and there has been a rebound in the five-year average net margins of the S&P 500 companies for 2006-2010.”
Geo Political Issues
Talking of geo political changes that have happened in the recent past, BofAmL was of the view that the break-up of the Euro zone was highly unlikely and they would try very hard to keep Greece afloat and as a result the Euro was expected to depreciate against the US dollar.
“As long as the German economy grows, there would not be any instability to the EU,” said Mr David F. Gordon, Head of Research , Director, Global Macro Analysis, Eurasia Group, BofAML.
“Risks to India would increase due to radical Islamisation of South and Central Asia.
“However, here is little oil supply risk as Saudi Arabia is keen to ensure that Iran does not reap a windfall and hence oil prices are expected to stabilise.
“US would remain a safe haven for resources and though credit rating agencies have downgraded US treasuries from AAA to AA, AA will be the new AAA.”
Outlook on India
BofAML has adjusted its GDP growth forecast for India from 8.2 to 7.8 in FY12.
“There has been a slowdown in investment and consumption due to interest rate hikes and the market could be in for a upside surprise as it has already factored in slow policy growth,” said Mr Jyotivardhan Jaipuria, MD & Head of Research DSP Merrill Lynch India.
“We also expect the earnings for Sensex stocks to decrease from 21 to 17 per cent for Q1FY12,” he said.