A Thai investor checks an electronic board showing stock prices at Asia Plus Securities amid Coronavirus threats in Bangkok.
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Swiss investment bank Credit Suisse expects global growth to accelerate in the coming months as countries gradually reopen their economies, leading to a recovery in revenue growth and rehiring.
In its investment outlook for the second half of 2021, Credit Suisse predicted the world economy will grow 5.9% this year and 4% in 2022. That growth will be led by vaccine rollouts, fiscal stimulus and a broadening services recovery. It also said the United States is set to grow at a rate of 6.9% this year, the Eurozone is expected to expand by 4.2% while Asia ex-Japan is predicted to grow 7.5%.
Economic expansion will likely lead to a sharp recovery in global earnings growth that is set to fuel the stock market, according to Ray Farris, chief investment officer for South Asia at Credit Suisse.
“We are looking for equities to be the asset class that is going to outperform over the next six months to a year,” Farris told CNBC’s “Squawk Box Asia” on Thursday. “As long as earnings continue to trend higher, history suggests that equities will grind their way up.”
“There will be corrections from time to time, but those corrections would really be opportunities,” Farris said.
Equities to outperform
In the equities market, Credit Suisse said it prefers exposure to cyclical sectors such as financials and materials. Cyclical stocks are companies whose underlying businesses tend to follow the economic cycle of expansion and recession.
The bank also prefers cyclical markets in Europe such as the United Kingdom, Germany and Spain. Farris explained on CNBC that Europe as an equity market is going to produce about the same earnings growth as the U.S. in 2021 but it is doing it at “valuations that are literally multi-decade lows on a relative basis.”
“You are getting Europe on sale as it comes out of the pandemic, as it reopens and as growth accelerates,” Farris said, adding that the U.K. has exposure to financials and the global economy while Germany has exposure to cyclical sectors.
In Asia, the bank’s preferences are Korean and Thai stocks, which can potentially benefit from the worldwide chip shortage and global reflation trends. Thai stocks are likely to also gain from a rally in oil prices.
Credit Suisse is neutral on Chinese equities, citing a slowdown in growth momentum post normalization from the pandemic and regulatory risks that are weighing on market sentiment.
Monetary policy
Farris pointed out in a separate media briefing that asset markets and asset prices remain supported by monetary policy in the U.S., Europe, Japan and other countries.
“Central banks, the core central banks, are likely to continue to expand their balance sheets, injecting more liquidity into systems, all the way through to the end of the year,” he said.
Inflation pressure and inflation risks have risen in recent months, according to the bank. It expects inflation to temporarily overshoot central bank targets in major economies as services sectors reopen. Persistent price pressures would encourage the U.S. Federal Reserve to withdraw monetary accommodation — in the form of monthly asset purchases to stimulate the economy — early, Credit Suisse said.
Farris said that he doesn’t expect the Fed to announce any decision until late third quarter and beyond, and that the actual tapering will not happen until 2022. Moreover, interest rates are likely to remain on hold until 2023.
“So, that’s a very supportive monetary policy backdrop for risky assets,” Farris said.
