Global Stocks to Post ‘Modest Gains,’ Prudential Says

By Saeromi Shin

Nov. 3 (Bloomberg) -- Global stocks may post further gains next year, boosted by economic growth and low interest rates, according to Prudential International Investments Advisers LLC.

Investors should buy stocks in the first half, especially those in emerging markets, instead of bonds and cash, John Praveen, Prudential’s chief investment strategist, said in a statement ahead of his speech in Seoul today. Prudential International Investments is a unit of Prudential Financial Inc., which managed about $580 billion of assets as of June.

“After strong gains in 2009, stocks are likely to post further modest gains in 2010,” according to Praveen’s presentation slides. “A substantial amount of fiscal stimulus is still in the 2010 pipeline” and borrowing costs are substantially lower than at the start of past recoveries, he said.

The MSCI World Index has risen 61 percent from March 9, its lowest level this year, and is set for its biggest gain in six years. Equities have rallied as governments poured in $2 trillion in stimulus measures and central banks cut interest rates to near zero to kick-start their economies. Last year, the measure dropped by a record 42 percent.

Other investors are less optimistic, with Scotland’s two biggest fund managers saying it’s getting tougher to make money from Asian stocks. Aberdeen Asset Management Plc has been reducing its holdings because of their valuations compared with other parts of the world, said Mike Turner, head of strategy. Ronnie Petrie, head of Asian stocks at Standard Life Investments, sold shares such as Globe Telecom Inc. in the Philippines.

Ripe For Consolidation

“We have taken our foot off the accelerator, but we are a long way away from putting our foot on the brake,” Turner, whose company managed 129 billion pounds ($212 billion) on June 30, said in an interview at his office in Edinburgh yesterday. “It’s ripe for a little consolidation in Asian markets.”

Praveen also expects stocks to be “volatile” next year because valuations are rising and as investors become concerned that central banks may reverse their expansionary measures. South Korea, India and China may start to “normalize” interest rates in the first half after cuts in the past year, followed by the U.K. and the U.S. later in the year, the strategist said.

Praveen has an “overweight” recommendation on emerging- market stocks and is “underweight” in U.S. equities for the first half of 2010. He also said investors should switch from emerging markets to U.S. stocks in the second half of 2010.

He also advises investors to buy financial, technology, industrials and materials stocks in the first half, and sell companies that are in the consumer staples, health-care and utilities industries, according to the statement.

Subdued inflation, liquidity and expected earnings growth may also help equities, according to the Prudential statement.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net