Credit Suisse says its “clients are close to being as bearish on equities as we can remember.”
In a downbeat edition of its “Global Equity Strategy” series, the Swiss bank outlines what it sees as the “new” consensus in global markets.
The main takeaway? “We have come across almost no one who seems to have outperformed or made decent returns this year,” says analyst Andrew Garthwaite and his team.
Just 29 out of 242 UK-focused funds tracked by the Investment Association beat the performance of the FTSE All Share index, Credit Suisse says. That’s terrible. Investors want fund managers to outperform the market otherwise they may as well just stick the cash in a tracker fund.
The bank says: “We have never had so many client meetings starting with statements such as ‘we are totally lost’.”
Credit Suisse has been doing marketing trips in the US, Europe, and South Africa, and it has found “the list of client worries very long.” It’s not just Brexit — nothing seems to make sense to investors anymore.
Here’s a summary of what they’re are worried about: workers fighting back in the US, hitting earnings; equities still not cheap; US growth mixed; China still screwed; central banks’ empty policy cupboards; politics being nuts (protectionism, anti-immigration moves, anti-corporate feeling); and technology running rampant and destroying business models.
If you follow the news then you’re probably nodding your head right now — all of those are fair points and all of them make investing in a company right now look like a fool’s errand.
Despite this, Credit Suisse is telling its clients to take a second look at stocks, mainly because the alternatives aren’t much better.
“In our judgment, government bonds, corporate bonds and real estate appear very expensive in most parts of the world,” the bank says. “As a result, although the cost of equity is a little lower than average, it is still within its normal range and unusually high relative to the discount rate on other instruments.”
The bank thinks liquidity levels and fiscal stimulus could also drive investors back into equities as people look for somewhere to shove their cash and look for a hedge against falling bond yields. As a result, it reckon stock prices should go up in the medium term.
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