Stock Bears Diminished Before Bailouts in Italy, France, U.K.

By Alexis Xydias

Oct. 15 (Bloomberg) -- Investors in Italy, France, Spain and the U.K. became less bearish on stocks even before governments around the world agreed to provide more than $2 trillion to rescue banks, a survey of Bloomberg users showed.

While most respondents expect benchmark indexes to decline in the next six months, fewer predicted losses than in September for France's CAC 40 Index, Spain's IBEX 35 Index and the U.K.'s FTSE 100 Index, according to the Bloomberg Professional Global Confidence Survey of 2,747 users. In Italy, investors said the S&P/MIB will gain while in Brazil they turned bearish for the first time since the poll started in November. Pessimism increased in the U.S.,Germany, Switzerland, Japan and Mexico.

The survey was taken between Oct. 6 and 10 as the MSCI World Index had its worst week on record. The gauge of 23 developed countries has since rebounded 11 percent as Britain took control of Edinburgh-based Royal Bank of Scotland Group Plc and HBOS Plc; France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to support financial firms; and the U.S. said it will invest $250 billion in banks.

``Even though the economic situation is very, very difficult, everything seems to be priced in current stock valuations,'' said Jacques Porta, who helps manage $180 million at Ofivalmo Patrimoine in Paris and participated in the survey. Porta said his company ``started'' buying stocks last week. ``We'll now have to monitor how weak earnings may come out.''

Credit-Market Freeze

Indexes in all 10 nations plunged more than 24 percent this year as concern that frozen credit markets will trigger a global recession erased $25 trillion in value from stocks worldwide. Financial firms reported $638 billion in losses and writedowns from mortgage-related investments since the beginning of 2007.



The MSCI World dropped 40 percent from its October record. The measure was valued last week at 11 times the earnings of its 1,730 companies, the lowest level since at least January 1995, data compiled by Bloomberg show.

The index climbed 9.5 percent on Oct. 13, the biggest advance since data began in 1970, while the Standard & Poor's 500 Index posted its largest surge in seven decades.

Pessimism Drops

Investors turned bullish in Italy, where the benchmark S&P/MIB Index trades at 7.6 times earnings, the cheapest among the 10 nations tracked in the survey.

The Bloomberg confidence index in the country rose to 53.16 from 46.43 in September. A number below 50 indicates investors expect stocks to retreat in the next six months, while a reading above 50 signifies a potential rally.

The biggest improvement in sentiment came in the U.K., where the confidence index rose to 28.89 from 22. That was still the lowest reading among the 10 nations. The measure for Spain climbed to 33.44 from 32.65, while France's gauge increased to 43.06 from 41.18.

Brazil, where the benchmark Bovespa Index gets about 45 percent of its value from commodities companies, saw the steepest slump in sentiment as oil tumbled. The confidence measure slid to a record low of 41.39 from 61.68 as crude extended its drop from a July record to 48 percent.

U.S. sentiment slipped to 34.25 from 35.18 even after Treasury Secretary Henry Paulson announced a $700 billion bank bailout and the Federal Reserve coordinated an unprecedented set of global interest-rate cuts with the European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank.

MSCI World, S&P 500

While the MSCI World was valued at the cheapest relative to earnings in at least 13 years at the end of last week, the S&P 500 was the cheapest in a year, data compiled by Bloomberg show.

The benchmark for American equities now trades at 19.1 times the earnings of its 500 companies, the most expensive among the 10 nations in the survey except Switzerland, where the 20-company SMI Index is valued at 37 times profit.

Wall Street analysts as of last week had not cut forecasts for record U.S. earnings. For the fourth quarter, analysts said companies in the S&P 500 will earn about $241 billion, the most ever.

New York-based Alcoa Inc., the biggest U.S. aluminum producer, and Charlotte, North Carolina-based Bank of America Corp., the second-largest U.S. bank, posted the biggest declines in more than two decades last week after third-quarter profits missed predictions by 28 percent and 69 percent. U.S. stocks fell yesterday on a worsening outlook for earnings at Purchase, New York-based PepsiCo Inc. and Redmond, Washington- based Microsoft Corp.

``The aggressive selling appears to be drying up, but for this bounce to turn into a rally we need the earnings season to be better than everyone predicts,'' said Nick Batsford, a technical analyst at Hobart Capital Markets Ltd. in London who participated in the survey.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.