Stock Bears Fade in U.S., U.K., Brazil on Credit Market Thaw

By Alexis Xydias

Nov. 12 (Bloomberg) -- Investors in the U.S., U.K. and Japan grew less convinced that stocks will fall over the next six months as the freeze in credit markets started to thaw, a survey of Bloomberg users showed.

Respondents still expect the Standard & Poor's 500 Index, the U.K.'s FTSE 100 Index, Japan's Nikkei 225 Stock Average, the Swiss Market Index and Spain's IBEX 35 Index to drop, according to the Bloomberg Professional Global Confidence Survey of 2,799 users. They grew more bearish in Italy, Germany and France than they were in October as Europe's economy moved closer to a recession. Only in Brazil did investors turn bullish and predict gains. In Mexico, investors were split, the survey, taken Nov. 3 to Nov. 7, showed.

The MSCI World Index of 23 developed markets advanced 8.2 percent since Oct. 27 after trading at 10.5 times the profit of its 1,728 companies, the cheapest level since at least 1995. Money-market rates in London yesterday dropped to the lowest level since 2004 after central banks cut interest rates and provided unlimited dollar funding, while governments offered $3 trillion in bailouts and guarantees to financial institutions.

``As we see the implementation of rescue plans and lower interest and money-market rates, this brings down the risk of holding equities,'' said Alberto Espelosin, who helps manage the equivalent of $7.7 billion at Zaragoza, Spain-based Ibercaja Gestion and participated in the survey. ``Stocks were priced in for the worst outlook.''

Credit Losses

Indexes in all 10 nations have still plunged more than 30 percent this year as concern that frozen credit markets will trigger a global recession and snuff out profits erased almost $30 trillion in value from stocks worldwide. Financial firms reported more than $918 billion in losses and writedowns from mortgage-related investments since the beginning of 2007.

Policy makers in Australia, China, the U.K., Japan, the U.S., India, Taiwan, South Korea and the euro region cut borrowing costs in the past three weeks as the International Monetary Fund predicted global growth will slow to 2.2 percent in 2009. That would mean a world recession under the fund's informal definition -- growth of 3 percent or less.

The rate cuts helped send the London interbank offered rate, which banks charge each other for three-month loans in dollars, lower for 22 straight days to 2.18 percent through yesterday, data from the British Bankers' Association show.

Third-quarter earnings shrank 21 percent for MSCI World Index companies that posted results, according to data compiled by Bloomberg. Companies from Chicago-based Boeing Co. to BNP Paribas SA in Paris and Beijing-based China Mobile Ltd. reported profit that missed analysts' estimates.

`Overwhelmingly Negative'

``Caution remains the watchword, despite attractive equity valuations,'' said David Shairp, London-based global strategist at JPMorgan Asset Management, which oversees $1.2 trillion. ``The data flow is overwhelmingly negative and suggests considerable earnings risks.''

Investors turned bullish in Brazil after the benchmark Bovespa Index slid to a level of 6.99 times the earnings of its companies on Oct. 27, the cheapest since at least 2001, according to data compiled by Bloomberg.

Brazil's Bovespa surged 27 percent since Oct. 27 as the country's central bank halted six months of interest-rate increases and the Federal Reserve gave the Latin American nation a $30 billion swap line to help overcome the credit crisis.

The Bloomberg confidence index in the country climbed to 55.66 from 41.39 in October, while in Mexico it increased to 50 from 36.81. A reading below 50 indicates investors expect stocks to retreat in the next six months while a reading above 50 signifies a potential rally.

Japan's reading advanced to 43.87 from 34.07. The result for Spain's IBEX 35 climbed to 34.96 from 33.44, while the measure for Switzerland's SMI Index improved to 45 from 43.23. The U.K. gauge increased to 32.3 from 28.89.

Recession

In the U.S., it rose to 35.67 from 34.25. The survey was conducted the week that Barack Obama was elected the 44th U.S. president. He will inherit the worst recession since Ronald Reagan's second year in the White House, economists said, as figures showed last week that U.S. payrolls plunged by more than half a million the past two months.

It's ``easier in the U.S. to get out of this situation because while they have one president with legislative support, here in Europe we have more than a dozen heads of states trying to agree,'' said Pedro Alves, a fund manager at Braga, Portugal- based Spot Gestao Financeira who participated in the survey. ``I am more positive on the S&P 500. The U.S. economy is a bit messy but I bet they can turn around things quicker than in Europe.''

France, Germany

Sentiment fell the most in France, to 36.54 from 43.06. The country's economy will contract 0.1 percent next quarter, according to economists' forecasts compiled by Bloomberg. The index for Germany slid to 34.35 from 38.25, while Italian investors returned to a bearish stance of 46.88 from 53.16.

Economic growth in the euro area will slump to just 0.1 percent next year, the worst performance since 1993, the Brussels-based European Commission forecast on Nov. 3. It said the economy, which contracted in the three months through June, will probably continue to shrink in the second half of 2008.

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