2021-08-25-瑞士信贷集团-股票_到2022年底上涨12_回报大于风险_41页_1mb

Global Equity Strategy Summary

Core Content

This document outlines the rationale for maintaining a bullish stance on global equities, particularly focusing on the MSCI AC World and S&P 500 indices, with targets set at 820 and 5,000 by the end of 2022, respectively. Despite various risks such as fiscal drag, China's tightening, the Delta variant, and credit spreads widening, the authors argue that the potential rewards outweigh the risks.

Main Reasons for Bullish Outlook

1. Monetary Conditions Remain Loose

   • Monetary conditions are projected to stay looser than during the Global Financial Crisis (GFC) even by the end of 2022.
   • The real fed funds rate is expected to remain near 50-year lows, with the output gap in 2023 approaching a 20-year high.
   • The Fed is reactive, not proactive, in its monetary policy decisions.
   • The ECB favors a symmetrical 2% inflation target, with continued asset purchases expected.
   • Japan is expected to return to pre-pandemic purchase levels.

2. Equity Risk Premium (ERP) Remains High

   • ERP is currently at 6.1%, higher than the warranted ERP of 4.1%, indicating potential upside.
   • The ERP model suggests a c10% potential upside if bond yields rise to 1.8%.
   • The P/E ratio is close to fair value, supported by high yield and TIPS.
   • P/FCF ratio remains above average despite elevated P/E.

3. Excess Liquidity Supports Market Levels

   • Central bank balance sheets are expected to grow by 7% in 2022, outpacing nominal GDP growth.
   • Excess liquidity, measured as M1 over nominal GDP, is supportive of market levels 10% higher than current.
   • The Bank of England’s preferred measure of liquidity remains supportive.

4. Stage of the Economic Cycle

   • Markets tend to peak when unemployment falls below full employment, which is not yet the case.
   • The true unemployment rate in the US is around 8%, suggesting spare capacity in the labor market.
   • The output gap closing in Q4 typically poses a tactical challenge, but strategically, the market remains in an early phase of the cycle.

5. High Probability of 2022 GDP Being Above Expectations

   • US GDP is expected to be above consensus, with excess savings helping offset fiscal tightening.
   • The fiscal tightening is projected to be closer to 4% of GDP rather than the 6% predicted by the IMF.
   • The multiplier effect of spending increases is higher than that of tax hikes, and tax hikes are expected to be back-end loaded.

6. Consumer Confidence and Demand

   • Global consumer confidence is at record levels, suggesting strong demand.
   • US consumer confidence measures remain high, with some diverging but still indicating robust sentiment.
   • The wealth effect from increased household equity and housing wealth is expected to drive spending.

Key Risks

• Fiscal Drag and Tightening: Fiscal tightening in the US is expected to be significant, though offset by excess savings.
• China’s Tightening and Slowdown: The tightening in China is nearing completion, reducing its impact on global markets.
• Delta Variant: While the spread is a concern, it is not viewed as a long-term risk.
• Credit Spreads Widening: Credit spreads are close to historical lows but are starting to widen, which may signal a risk to equity markets.
• High P/Es and Margins: US P/Es and net margins are near record highs, which could lead to valuation concerns.

Strategic Outlook

• The authors maintain that the strategic rewards of being long equities outweigh the risks.
• The market is expected to continue rising, with the potential for a 12% increase by the end of 2022.
• The bull market is supported by structural factors such as better minority shareholder rights and quality accounting.
• The ERP is expected to fall, but even if it does, the market is still above its average historical levels.

Key Figures and Models

• Figure 1: Monetary conditions are projected to remain loose.
• Figure 2: ERP has significant room to fall, indicating potential upside.
• Figure 3: Price to FCF yields are above average, suggesting better cash conversion.
• Figure 4: Central bank balance sheet growth is expected to slow but remain above nominal GDP growth.
• Figure 5: The market de-rating implies a larger slowdown in central bank printing than expected.
• Figure 6: GDP growth and ERP are closely correlated.
• Figure 7: Targets for S&P 500 and MSCI AC World indices.
• Figure 8: Real bond yields are low, supporting higher ERP.
• Figure 9: Excess liquidity remains above nominal GDP growth.
• Figure 10: GDP is expected to be above consensus in 2022.
• Figure 11: Consumer confidence remains high.
• Figure 12: The multiplier effect of spending increases is greater than tax hikes.

Conclusion

Despite the risks, the authors believe the global equity market is well-supported by loose monetary conditions, high ERP, excess liquidity, and strong GDP growth expectations. The bull market is not expected to reverse in the short term, with the potential for continued upside.