Stock Pessimism Fades as Commodities Tumble, Bank Concern Eases

By Michael Patterson

Aug. 13 (Bloomberg) -- Stock investors from Mexico City to Madrid are growing less pessimistic after oil tumbled 23 percent and concerns about bank losses receded, a survey of Bloomberg users showed.

While most investors expect benchmark indexes to decline, fewer predict losses than in July for the Standard & Poor's 500 Index, the FTSE 100 Index, France's CAC 40 Index, Italy's S&P/MIB Index, the Swiss Market Index, Germany's DAX Index, Spain's IBEX 35 Index and Mexico's Bolsa, according to the Bloomberg Professional Global Confidence Survey. Brazilian investors were the most bullish for a ninth month. Only in Japan did they grow more bearish, last week's survey of 2,229 users showed.

The MSCI World Index rebounded 1.8 percent from an almost two-year low last month as oil's decline eased concern that inflation will force central banks to increase interest rates as economies slow. Financial shares led the rally after earnings reports from Citigroup Inc., Societe Generale SA and Credit Suisse Group AG exceeded analysts' projections.

``Commodities will continue to correct and this will help equities,'' said Philippe Gijsels, a survey participant who helps oversee about $62 billion in Brussels as senior equity strategist at Fortis Global Markets. ``It also seems the worst is behind us in banks.''

All the same, ``if you look at the long-term picture, we have not seen all we need to see to declare the end of the bear market,'' he said.

`Fragile State'

Stock indexes in all 10 nations plunged 20 percent or more since September. The MSCI World, which fell as much as 21 percent from its October peak, traded in July at 14.1 times average reported earnings, the cheapest since Bloomberg began tracking the weekly data in February 1995. The measure was valued at 15.7 times profit yesterday.

``If you back up a step and look at earnings there's no doubt that the economy is in a fragile state,'' Scott Richter, who helps oversee about $21 billion at Fifth Third Asset Management in Cleveland, said in a Bloomberg Television interview.

Global economic growth will weaken to 4.1 percent this year from 5 percent in 2007, the International Monetary Fund said last month. A decline in lending may worsen the slowdown as financial companies saddled with about $500 billion of credit losses and asset writedowns preserve cash, a Federal Reserve report showed this week.

Brazil Optimism

Analysts cut estimates for 2008 profit growth at S&P 500 companies to 1.6 percent from 15.1 percent in December, according to data compiled by Bloomberg. Earnings in Europe's Stoxx 600 Index are projected to fall 2.5 percent, compared with estimates for 10.7 percent growth at the end of 2007, the data indicate.

The Bloomberg stock confidence index in the U.S. rose to 34.15 from 28.39 in July, while the U.K. measure increased to 23.77 from 18.26. The gauge in Mexico climbed to 45.45 from 43.36.

In Brazil, the only market where investors predicted gains, the index advanced to 60.76 from 54.29. A reading below 50 indicates investors expect stocks to retreat in the next six months while a reading above 50 signifies a potential rally.

Sentiment improved as oil dropped from a record $147.27 a barrel. Gasoline, copper, corn and soybeans also tumbled, sending the Reuters/Jefferies CRB Commodity Index to its biggest monthly decline since 1980 in July.

The retreat eased concern that the Fed and the European Central Bank will boost borrowing costs to contain inflation that climbed at a 5 percent pace in the U.S. during June and a 4.1 percent rate in the Euro region in July.

`Credit Crunch'

``The view is that falling crude oil prices is good for the equity markets,'' said Nick Batsford, a London-based technical analyst at Hobart Capital Markets Ltd. who participated in the survey. ``People are also suggesting we are getting close to the end of the credit crunch.''

The MSCI World Financials Index climbed 9.5 percent from an almost five-year low on July 15. New York-based Citigroup, the biggest U.S. bank by assets, Paris-based Societe Generale, France's second-largest bank, and Zurich-based Credit Suisse, Switzerland's second-biggest bank, jumped more than 25 percent from their 2008 lows.

Even though bank stocks climbed, ``uneasiness'' in the financial system and the economic outlook may cause equities to retreat, according to Kenji Sekiguchi, general manager of strategic research and investment at Mitsubishi UFJ Asset Management Co. in Tokyo.

Lower Forecasts

The Bloomberg confidence index in Japan fell 6.52 points to 32.93, the lowest level since the survey began in December. The Nikkei 225 Stock Average lost 15 percent this year as Tokyo-based Sony Corp., the world's second-largest maker of consumer electronics, and Daikin Industries Ltd., the second-biggest maker of air conditioners, declined.

Both reduced profit forecasts in the past month, citing weak demand from the U.S. and Europe.

``The worsening of the macroeconomic picture in Europe and Japan has started to emerge,'' said Sekiguchi, who helps oversee about $61 billion. ``There is doubt about how long oil's decline'' can lift stocks, he said.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.