Saturday, December 31, 2011
Stock Market: 2012 - Year Of The Bull?
Even some decent economic development in 2012 could trigger a strong rally, because the majority is betting on a worsening. Many are under-invested, including the majority of the big funds. A lot of money idles now in bonds and money market funds, with almost zero interest. A rising stock market could set many fund managers under performance pressure. They would have to buy stocks otherwise they would miss the upswing.
1. The stock market in Shanghai, which was one of the biggest losers in 2011 (minus 22%), could lead the global rally. Many funds are are now speculating on a recession in China, the so-called hard landing. I reckon the China pessimism as ill-founded because the huge workforce has still a strong necessity to adapt to Western standards. Therefore consumer expenses should continue their sharp growth, making the gigantic country less dependent on foreign influences. There also are signs that the government, which in 2011 slowed the economy to fight the inflation, reacts to the slightly cooling economy and loosens the brakes. Both could reaccelerate the growth rate, helping the whole global economy.
2. I guess that the European mess could show signs of a slow healing, because the European economies are adapting to reduced public expenses, helped by extremely low interest rates. The leading German economy, which is focused on exports, should benefit from the ongoing growth in China and other emerging markets and stabilize the rest of Europe.
3. The U.S. economy could continue its mild growth, maybe gain a bit of speed, driven by the healing job market (falling weekly jobless claims), climbing exports (thanks to China and other emerging markets), sharply rising company profits, a solid growing manufacturing sector and optimistic free-spending consumers.
The alleged positive developments in Europe, China and U.S would disappoint the pessimistic majority who are now betting on doom & gloom. If these factors would add together they could amplify the rally.
Happy New Year to everybody!