Global stocks on the rise, economy could cap gains

The world's major stock indexes should trade higher a year from now but fears of a slowing economic recovery might permit only modest gains in some rich-world markets, a Reuters poll showed on Thursday.
Against expectations of previous quarterly Reuters polls, most stock markets from both the rich world and emerging markets are on course to finish the first half of 2010 in the red. Median forecasts from over 300 strategists surveyed in the latest poll showed a much better second half to the year - though they were more likely to predict bigger gains over the next 12 months for fast-growing emerging indexes than major industrialised peers.
With a eurozone government debt crisis that rocked global markets in the second quarter yet to be resolved, and austerity measures taking effect in many Group of 20 nations, respondents pointed to a global economic slowdown in the months ahead.
"Risks of a crisis within the eurozone remain elevated," said Philippe Gijsels of BNP Paribas Fortis Global Markets.
"The world economy will slow in the second half - the big question is by how much."
Still, most stock exchanges are seen ending the year with strong gains compared with their closing levels at the end of 2009.
The US Dow Jones Industrial Average and the S&P 500 are both expected to end the year posting double-digit increases of 11.7 and 12.6 percent respectively, despite both trading in the red for this year as of June 23.
Strong corporate earnings in North America and Europe will form key pillars of support behind the ascendancy of their stock indexes in coming quarters, poll respondents said.
"Many of the Anglo-Saxon-oriented companies have been aggressive in trimming back their costs, making a much leaner business model," Stephen Pope from Cantor Fitzgerald told Reuters Insider Television.
"So anything we've seen as an improvement to top-line filters very quickly through to the bottom line."
Renewed expectations for the major central banks to keep interest rates at record low for the rest of this year also added to the positive sentiment for stocks to the end of 2010.
On Wednesday - after the bulk of the polling had been completed - the US Federal Reserve said it would keep its benchmark interest rates exceptionally low for an extended period and scaled back its view of the economic recovery.
And the European Central Bank and Bank of England are not expected to raise rates until well into 2011, according to Reuters polls of economists earlier in June.
However, the relative weakness of the recovery in Britain and the eurozone will likely limit gains in major stock exchanges there to mid-single-digit percentages by the end of 2010, the poll showed.
Stock markets in most big emerging markets like Brazil, China and Russia have endured a turbulent 2010, with the Shanghai Stock Exchange Composite down 21.7 percent this year as of Thursday's close.
But aside from a Taiwanese market heavily exposed to a rising Chinese yuan and struggling European export markets, strategists expect emerging market indexes to recoup their losses by the end of the year and outpace most rich world peers through the first half of 2011.
Hong Kong's Hang Seng, the Russian RTS and Brazil's Bovespa are expected to rise more than 20 percentage points over the next 12 months, with India's BSE Sensex not far behind.
"The market is still highly liquid, and rates are at a historical low," said Francis Kwok at Bright Smart Group in Hong Kong.
Among rich-world countries, only the Australian A&P/ASX 200 Index is seen gaining more than 20 percent in the next 12 months, with Italy's FT MIB expected to rise around 18 percent. Australia was less affected by the global financial crisis than its European and American counterparts and has seen a far stronger economic resurgence following a slowdown.
"You still have the cloud of European and sovereign debt issues, and that still remains to me one of the big risks going forward in terms of sentiment," said George Clapham at Arnhem Investment Management of Sydney. "But in terms of valuations at the moment the market is very, very attractive," he said.