Mr. Latif: Another view, fwiw.
biz.yahoo.com
Stock market rallies to run out of steam - Merrill
By Carrie Lee
HONG KONG, March 17 (Reuters) - Recent rallies in global stock markets would not last
and another crisis loomed, Merrill Lynch said on Wednesday.
''We see some cyclical rallies in a lot of the markets. We think they are short term. They are
measured in weeks not in months or quarters in terms of their duration,'' Merrill Lynch chief
quantitative strategist Richard Bernstein told reporters.
''We don't think the bubbles have been completely deflated around the world,'' he said. ''Many of the bubbles that occurred
through the 1980s and the early 1990s still exist.''
Many of the problems that gave rise to the last market crisis remained unresolved, he added.
''It is just a matter of time when the next crisis occurs and the market is down again,'' the firm's director of international
quantitative strategy, Markus Barth, said, giving no time frame.
On Tuesday the Dow Jones Industrial Average briefly breached the 10,000 point market for the first time. A raging bull market
has seen the Dow soar 6,000 points in 4 years.
He did not make any specific comment on the Dow but said Merrill believed the recent rally by the Japanese market,
supported by major brokerages that had gone positive on the country over the past few months, was a temporary
phenomenon.
''We think that the rally will continue probably for another, maybe 30 to 60 days,'' Barth said.''History has shown that these
rallies only last for about three to four months.''
The key Nikkei 225 index in Tokyo has risen strongly recently and is now at its highest level since July 31, 1998.
Barth said the environment of low interest rates would disappear in Japan ''over the next three, five, seven years'' and
P/Es (price/earnings ratios) would fall and unemployment rise.
Merrill Lynch manager of global quantitative strategy Nigel Tupper said the Asia Pacific market was unlikely to recover
significantly given the slowing global profit environment.
''We see it very difficult for Asia Pacific to actually recover significantly,'' Tupper said.
Bernstein added the global profit cycle would continue to decelerate in 1999, turning investors towards higher-quality
investment around the world.
''We basically favour larger-cap quality companies,'' he said.
''We think in global portfolios, managers should be overweight in the U.S., overweight in Europe...underweight in Japan, in
emerging markets and in resource markets,'' he said.
Tupper said firms that showed growth characteristics, quality firms that gave high return on equity and high return on assets with
a low debt level, and firms with larger market capitalisation would continue to outperform.
He added it was a ''wonderful opportunity'' to buy utilities stocks, which had been sold down in the fourth quarter of 1998.
''It's definitely not time for cyclicals yet,'' he said.
Merrill Lynch forecast that volatility would remain high in
secondary markets.
''We will remain cautious on secondaries,'' said director of small cap research department Satya Pradhuman said, highlighting
the adverse credit position of many small-cap companies. |
