yep.....hope nobody here really bot the 'decoupling' myth
World equities heading for bear territory
As investors mull over the recent tumble in equity prices, Merrill Lynch strategists in London on Wednesday had further bad news to deliver.
In recent weeks, the US bank has polled some of the largest global asset managers in the world, who control some $700bn of assets.
The responses show that expectations of a global recession are rising and the outlook for company profits is worsening as the credit crunch appears to be entering a new phase.
David Bowers, a consultant to Merrill Lynch, said: "Institutional investors are acknowledging for the first time that the credit crunch could lead to a recession. That is very different from three months ago".
It is a downbeat message now being loudly echoed by equity markets, where some analysts now talk openly about the arrival of a bear market (or one where prices fall more than 20 per cent).
The key Asian markets, which investors had hoped would weather the credit storm, have been some of the notable casualties in 2008. Hong Kong and Singapore have fallen about 12 per cent since the start of the year, with the Hang Seng 23 per cent down from last year's peak - putting it technically in "bear" territory.
In Europe, the UK's FTSE 100 and the German Dax 30 are down about 7 per cent, while the French CAC 40 has fallen about 6 per cent this year. The FTSE 250 index has fallen more than 20 per cent from its peak last year.
In the US, the S&P 500 has fallen 6 per cent this year, to its lowest since March, when problems in the US subprime mortgage market first emerged. The S&P is more than 12 per cent below its October record of 1,565.15.
Edmund Shing, European equities strategist at BNP Paribas, said: "A lot of analysts are saying we are now in a bear market.
"It is certainly very gloomy with very few reasons to buy - economic growth is being revised down and company results may be bad."
The Merrill survey showed one fund manager in five thought a global recession was likely in 2008, while the percentage of those who thought one had begun doubled to 8 per cent. Almost 60 per cent of the managers think the outlook for corporate profits is worsening, while fewer than 10 per cent expect a continuation of the double-digit earnings growth of the bull market.
In Europe, a record 80 per cent of fund managers expect the region's economy to weaken as well. Karen Olney, strategist at Merrill Lynch, added: "[This] is the most bearish reading for profits and economic growth for over a decade. European investors are saying we are in a profits recession."
Other analysts are worried that property prices are tumbling in the UK and Spain while in Germany, Europe's biggest economy, the economic outlook darkens, with the ZEW research institute index this week falling for the seventh time in the past eight months.
In the US, a poor December jobs figure sparked one of the worst starts to a new year for Wall Street.
Jim Paulsen, chief investment strategist at Wells Capital Management, said: "Outside of financials and consumer discretionary stocks, the market was not indicating a chance of a recession last year, but now sentiment has turned."
He said: "Since the jobs number, the stock market has shown every indication of projecting a recession. The bond market is fully priced, while the stock market has a way to go should the economy enter a recession."
Sreekala Kochugovindan, strategist at Barclays Capital, said: "As investor sentiment continues to deteriorate, the near-term outlook for equities remains bleak."
She said that the bank's own sentiment indicator was now flagging up the highest level of risk aversion in the market since 1996, or when Barclays started collecting the data. "Our sentiment-based equity risk indicator is posting another 'crisis' reading, or extreme risk aversion," she said. "It suggests that the current sell-off is set to continue."
Sectors that are suffering the most are financials, retailers, technology and industrials.
In the US, weakness is being led by groups that are vulnerable to a weaker US and global economy.
Technology is down 10.8 per cent, consumer discretionary is off 9 per cent, financials lower by 7.5 per cent and industrials down 7.2 per cent.
There are some chinks of light. Some economists predict a possible three-quarter point cut in interest rates in the US at the end of the month, while monetary easing is also expected in the UK.
Another factor that could offset some of the gloom is that the fund managers are sitting on large levels of cash - partly because investors fear they have few safe places to put their money.
This means that if investor confidence does return, some of these funds may yet move into equities again. Sadly, this does not seem likely soon - or not, at least, judging from recent market trends, or from the findings of the Merrill survey.
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