By Alexis Xydias and Lynn Thomasson
Jan. 14 (Bloomberg) -- Investors from New York to Sao Paulo grew less pessimistic about stocks over the next six months on speculation a U.S. stimulus plan and the lowest interest rates on record will revive the global economy, a survey of Bloomberg users showed.
Fewer respondents in the Bloomberg Professional Global Confidence Survey are predicting declines for the Standard & Poor’s 500 Index, Brazil’s Bovespa, the U.K.’s FTSE 100, the CAC 40 in France, Germany’s DAX and Spain’s IBEX 35, the poll of 2,390 users taken Jan. 5 to Jan. 9 showed. Only in Mexico did investors turn bullish and forecast gains, while pessimism increased in Japan, Switzerland and Italy.
The MSCI World Index advanced 15 percent since Nov. 20 as U.S. President-elect Barack Obama pledged to reduce taxes, create jobs and invest the most in infrastructure since the 1950s. The Federal Reserve has slashed borrowing costs to as low as zero percent, and the Bank of England last week cut interest rates to a level not seen since its founding in 1694.
“There’s light at the end of the tunnel as the massive monetary measures of central banks bring back confidence,” said Philipp Musil, who helps oversee about $13 billion at Constantia Privatbank in Vienna and participated in the survey. “We expect a nice rally in the medium term, probably starting in the second quarter or second half.”
Libor, TED Spread
Government efforts to reduce borrowing costs and lend unprecedented amounts of cash directly to banks have also helped boost sentiment toward stocks as credit markets thaw.
The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans in dollars slid to 1.09 percent yesterday, the lowest level since June 2003, according to British Bankers’ Association data. The difference between the rate the U.S. Treasury and banks pay for three-month loans, the so-called TED spread, dropped below 100 basis points for the first time in five months.
The MSCI World is still down 47 percent from its October 2007 record. The benchmark index for 23 developed countries has retreated for six straight days as companies from New York-based Alcoa Inc. to Bonn-based Deutsche Postbank AG spurred concern the profit outlook is worsening, while unemployment in the U.S. climbed to the highest in almost 16 years.
Indexes in all 10 nations have plunged more than 26 percent in the past year as $1 trillion in credit-market losses sent the U.S., Europe and Japan into the first simultaneous recessions since World War II.
‘All Available Tools’
Obama, who takes office on Jan. 20, has urged lawmakers to pass an economic recovery plan that may total about $775 billion and generate as many as 4 million jobs. The Fed cut its benchmark interest rate on Dec. 16 to a target range of between zero and 0.25 percent and said it will employ “all available tools” to revive growth.
The measures helped push the Bloomberg confidence index for U.S. stocks 1.6 percent higher to 38.8, the third straight monthly increase. A reading below 50 indicates investors expect equities to retreat in the next six months while a reading above 50 signifies a potential rally.
Investors grew more optimistic about Brazilian stocks, with the gauge climbing 5.4 percent to 47.9. The Germany measure added 9 percent to 42.5 and France’s reading surged 44 percent to 46.8. Respondents in Spain pushed their measure up 12 percent to 37.3, the survey showed.
The reading from Mexico-based participants climbed 6.6 percent to 51.3. The country’s Bolsa Index rebounded 25 percent since Oct. 27 as President Felipe Calderon proposed spending about 1 percent of gross domestic product to help Latin America’s second-biggest economy weather the financial crisis.
U.K. Economy
Investors were most bearish on U.K. stocks even after the country’s measure climbed 10 percent to 33.4. Reports yesterday from lobby groups showed the British economy slumped the most in at least two decades during the fourth quarter and home sales dropped to the lowest level since tracking began in 1978.
Respondents grew more convinced that the Swiss Market Index and Italy’s S&P/MIB will decline over the next six months. Switzerland’s reading slid 6.6 percent to 40, while the Italian confidence gauge fell 6.5 percent to 49.5.
Japan-based participants also became more bearish, with the index dropping 6.9 percent to 36.5. The yen’s climb to the highest against the dollar since 1995 last month dimmed the earnings outlook for exporters such as Tokyo-based Honda Motor Co., which gets more than half of its profit from North America. Toyota City, Japan-based Toyota Motor Corp. last month forecast its first operating loss in 71 years.
Earnings Estimates
U.S. and European companies will extend their profit slump, analysts’ estimates compiled by Bloomberg show. Earnings for companies in the S&P 500 will shrink 2.1 percent this year after contracting 11 percent in 2008, the forecasts indicate. Profits for companies in Europe’s Dow Jones Stoxx 600 Index will slide 1.2 percent in 2009, after a 16 percent tumble last year, the data show.
The MSCI World is valued at 10.9 times the earnings of its 1,687 companies, compared with an average ratio of 26.3 this decade. The U.K.’s FTSE All-Share Index pays 3.9 times more in dividends than the Bank of England’s benchmark rate, the highest in at least a decade, weekly data compiled by Bloomberg show.
“There will be some horrific economic data but you are being paid to take risk,” said Andrew Cole, a London-based fund manager at Baring Asset Management, whose team raised its equity allocation to 42 percent of total assets from as much as 12 percent in October. As “governments and central banks are making cash an unattractive proposition for investors, we will slowly move up the risk-asset ladder,” he said. Baring Asset oversees about $31 billion.
To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net.
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