New York: Global Equity markets are more likely to advance than fall in the next six months amid low risk of recession and attractive valuations, UBS Global Wealth Management has said.
“Following the economic data rather than the news headlines has proven a good strategy for navigating the market over the medium term,” Mark Haefele, chief investment officer with UBS Global Wealth Management was quoted as saying by Xinhua news agency on Friday.
Now, global equities trade on 15.5 times of price-to-earnings (PE) ratio in comparison with long-term PE ratio of 18.3 times. In particular, equities in emerging markets have around 11 times of price-to-forward earnings ratio and 25 percent valuation discount to peers in developed countries.
Monetary policy of US Federal Reserve, escalation of trading tensions and poor market sentiments could weigh on markets, according to UBS.
Though it’s rational for the Federal Reserve to slow down pace of interest rate hikes, it may feel the need to display independence following recent criticism from US President Donald Trump.
The Federal Open Market Committee is scheduled to hold its regular meeting on Dec. 18-19 with Federal fund rate expected to be hiked by 0.25 percent.
“I think the most likely case is for the Fed to continue to raise rates three or four times in 2019. But it’s also possible that if the economy slows further that the Federal pause,” said Barry Eichengreen, professor of economics and political science with University of California, Berkeley, recently.
The underlying rate of growth which comes from the labor force growth and productivity growth is only 2 percent. To avoid inflation and imbalances, the growth rate has to smoothly decline from the 3 percent or so at which it’s been running to 2 percent which is the underlying potential growth rate, according to Eichengreen.
The U.S. economic growth would fall to 2.3 percent in 2019 from 2.9 percent estimated for 2018 and the Federal Reserve would raise interest rates two times and pause in 2019, according to a report by Morgan Stanley on Dec 7.
The yields of two-year and 10-year Treasury bonds are not expected to invert. Even such inverted yield curves happen, it would not point to an imminent recession or bear market, said the UBS.
Still, the inversion of two-year and three-year notes against five-year Treasury bonds on Dec 4 jittered the market with concern over impending recession of US economy.