Morgan Stanley’s UK strategist, still hyperventilating from the firm’s brush with death, says the bear market is over. At least in the UK. The Guardian:
“Despite the bad fundamental outlook, prudent investors should not be short equities, and long-term investors should average in. We believe we are in the worst earnings recession of the last 40 years, expecting a 43% earnings recession ending at the end of 2009. But we do believe at 8 times trailing earnings, or 14 times our estimate of end of 2009 trough earnings, the bad news is in the price, and we do not wish to be short equities…
“Our idea [is] that the severe part of the bear market is over, that there is value, but probably no hurry, as there are many short-term risks related to emerging markets, foreign exchange and deleveraging. The more prudent investor may wish to stay in cash and not be overweight equities, but our advice is not to be short or underweight anymore. Our advice is also for long-term investors to keep on averaging in at these and lower levels.
“The latest elements that pushed us [to a buy signal] have been a capitulation among retail investors, purchasing managers and sell-side analysts, as measured by record mutual fund outflows, ISM new orders below 40 and analysts revisions collapsing. The idea is that when these three groups know about the bad news, equity prices are probably already reflecting it.”
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