Credit Suisse: Stick With Equities

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There’s no shortage of reasons why the global yield environment remains so unattractive. Europe and Japan are digging even deeper into quantitative easing, China is taking more aggressive monetary policy actions to fight deflation, and the U.S. Federal Reserve now seems likely to begin hiking rates later than previously thought. The European Central Bank’s quantitative easing program is making bonds particularly undesirable, as it continues to drive some yields into negative territory. All of which leave equities as the clear favorite when it comes to investor preferences. “The yield picture continues to be broadly unattractive,” says Anja Hochberg, Chief Investment Officer for Europe and Switzerland at the bank’s Private Banking and Wealth Management Division. “We reiterate our clear preference for equities over bonds.”   The most important factor in the Private Banking division’s call is the global economic outlook, which continues to brighten. Yes, there was weak first quarter GDP data in the U.S.—the economy grew only 0.2 percent at an annualized rate. But Credit Suisse expects that soft patch to dissipate in the second quarter since consumer confidence levels remain high and investment spending continues to increase. And then there’s Europe, where improving economic data should continue to be positive for equities. PMI numbers for the Eurozone’s manufacturing sector have picked up, rising from 51.4 in November to 53.5 in April. This, combined with a weak euro and persistently low interest rates, has led Credit Suisse to increase its forecast for 2015 Eurozone growth from 1.3 to 1.6 percent.   Within Europe, equities in Germany and Italy look particularly attractive, says Credit Suisse. While Germany’s DAX index has gained 33 percent since last October, it likely has further to climb given the country’s strong economic outlook and supportive monetary policy. Japanese stocks also deserve a look. This year’s wage growth in Japan should exceed the 2 percent level recorded in 2014, which would presumably boost household income. Corporate earnings have also recovered, driving expectations for higher dividends. “Japan deserves special attention,” the Private Bank said in a recent report titled “Stick to Equity Investments.”   Lower energy prices have also made equities attractive across much of Asia. Disinflation induced by low oil prices has resulted in lower industrial production costs in oil-importing countries as well as broad monetary easing by Asian central banks, both factors that are positive for equities. Indeed, in November Credit Suisse pointed investors toward a select group of stocks in oil-importing Asian countries, and since then they have outperformed the MSCI Emerging Markets index by 10.7 percent. Looking to the future, Fan Cheuk Wan, Credit Suisse’s Chief Investment Officer for Asia Pacific, says stocks in China, Hong Kong, Taiwan, Korea, Japan and Australia should outperform their regional peers.

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