Some Notes On The World Around US – World Equity Markets Towards 2011

Charles Snyman of the Efficient Groep says: 

The current world equity market environment can be summarized as follows:

  • The world is in a good news environment which will probably last through 2010 to somewhere in 2011. Company and economic news in all major world centers will continue to break news better than expected or better
    than the recent history.
  • In the US stocks are not particularly expensive. This is important because the US is probably the driver of world investment sentiment. In South Africa the p/e ratio of the Alsi 40 and the All Share Index is probably very close to the 10 year average.
  • Money market funds in the US still hold many trillions of dollars that needs to be allocated to the equity market. This is likely true for most countries/economies.
  • Lots of international investment cash is being allocated to the emerging markets. This is likely to continue throughout 2010. In SA we have received ZAR55billion this year so far. This is of course one of the reasons for the strong rand.
  • International news reports and anecdotal evidence seems to indicate that many portfolio managers have missed the bull run of 2009.

The above facts may indicate that there will be many buyers if the equity markets are weaker during the next three to six months. This will translate to not much downside potential during this period. After the very strong run in world markets since early March 2009 (the Dow Jones Industrial Index increased from 6457 to 9712 as at close 30 September, an increase of almost 50%) one may expect a period of rest and very possibly some downside potential.

How much? This note proposes that there is much potential demand for equities and that downside price potential is limited. Over the longer term (six to 18 months) we have a healthy economic environment that will stimulate equity markets.

Markets will [however] remain volatile. Read on….

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