Lets give ’em another chance … now on equities:
- If you’re asking if its time to buy … “Our response remains, ‘not yet,” says MS
- “In our view the current rally is likely to be short-lived and investors would be better-placed staying defensive rather than adding to equities”
- The gains in past weeks have “all the characteristics of a short-covering rally with the largest gains seen where the largest shorts were placed”, and they’re not “backed by fundamentals”
MS says there are 4 reasons not to buy:
1. Earning globally are trending lower, both in emerging (‘sharply lower’ earnings) and developed markets (signs of slowing)
2. Global debt is back at record highs … global debt to GDP now higher than the GFC peak
3. Share price valuations above long-term averages levels
4.
China still a “key risk” – “growth remains weak”, policy responses have
been about “kicking-the-can-down-the-road” instead of structural
reform.
- MS also highlight trade issues, exports and imports both plummeted y/y
- Chinese debt is too high
MS do counter their argument (sort of, actually, not really) with a reason to buy:
- The low oil price
- In the past lower oil prices have stimulated economic growth & could again
- Buy on balance they reckon high debt levels are outweighing low price benefits. Bummer.
MS offer what to watch for when it is time to buy:
- A turn in earnings momentum
- Lower equity valuations to below average levels
- Better Chinese data
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