Earlier today, Frédéric Buzaré, Global Head of Equities, presented Dexia Asset Management's equity market outlook for 2009.
2009: a healing, improving equities market
There is hope for the equity markets in 2009, though the waters are still expected to be rough and volatile. In spite of governments having mobilised an unprecedented response to this year's unprecedented crisis, the market has so far openly doubted the effectiveness of the measures announced. This attitude should improve and even change dramatically in 2009, as the most pressing problems – notably the financial position of the world's banks – have already been addressed. The only unresolved issues are US consumption and the property market. Recent measures and the upcoming stimulus plan to be implemented by the Democratic administration should usher in more optimism on these issues.
The de-leveraging process will, of course, continue to weigh on the prospects for economic growth. Both the US and the European economies will post negative economic growth throughout 2009; however, the underlying trend will show an improvement in the wake of a very difficult first half.
Against such an unfavourable economic backdrop, the equities market is nevertheless expected to benefit from a number of positive factors. The market once again succeeded in anticipating the real economy, having readjusted its expectations to reflect a recessionary environment. The stream of negative newsflow should hit a peak as 2008 draws to a close and 2009 begins. History has proven that it always takes time for the equity markets to stabilise, and up to now the necessary conditions for a sustainable rebound simply have not been present. Investors are notably going to have to define new promising investment themes.
The equity markets were harshly impacted by two factors in recent weeks: constantly deteriorating newsflow and a complete lack of visibility. Both factors are expected to reverse in 2009. The markets should see improved visibility in the global economic outlook and an improvement in lending conditions. The easing of the credit market, a prerequisite to any hope for a sustainable recovery, should help put the emphasis back on valuations, which was not the case in 2008. The tax-related, fiscal and monetary measures in place should gradually begin to have a positive impact on investor morale over 2009 before affecting the real economy towards the end of the year.
In many ways, the period which we are now entering may recall the early 1990s, which were underscored by poor economic growth and a modest yet positive showing from the equity markets. In this kind of environment, stock-picking will be of the utmost importance and, under a primarily macroeconomic influence, will generate more value than in 2008. Today's crisis has resulted in a number of profound, long-term changes with regard to risk return. Quality will remain a dominant theme, even more so than short-term volatility. Against this backdrop, Dexia AM is adopting a strategy focused on visible growth, low debt and high returns...
The full document in English is in attachment.
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