Equities show value in recent “glimmers of light”, says ML’s O'Neill
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Signs of improvement in the US and some other major economies continue to make equities seem good value, according to Merrill Lynch’s Bill O’Neill, although this sentiment does not extend to the eurozone.
Bill O’Neill
In his latest weekly outlook, O’Neill, the chief investment officer (CIO) for Europe, the Middle East and Africa at Merrill Lynch Wealth Management, gives US, UK and Japanese equities positive ratings, while he is neutral towards emerging markets.
He highlights recent better-than-expected US data, such as September’s retail sales posting “well ahead” of analysts’ forecasts, as suggesting that private consumption in the world’s largest economy could expand in the third quarter of the year and avert recession at the moment.
Valuations for US stocks are still supportive, according to the CIO. He notes that the market is currently discounting a negative economic outlook but earnings for the country’s companies are starting to be downgraded.
Looking to the UK, O’Neill says the move by the Bank of England to expand its quantitative easing programme by £75 billion supports the investment case for UK equities, despite the cyclicality of the country’s market remaining a risk.
Japanese equity market fundamentals remain intact, the commentator adds, while the appreciation of the yen from current levels is unlikely given the conditions in the market.
O’Neill also draws attention to “glimmers of light” in emerging markets, mainly citing the actions of central banks. Chinese authorities recently made a much-noticed move to bolster the share price of some of its major lenders, while the Bank of Indonesia announced a surprise cut in interest rates.
However, the CIO is less optimistic on the outlook for European equities and gives them a negative rating, as the risk created by the eurozone debt crisis is offsetting how attractive the “very favourable” valuations of some companies are to investors.
Despite a recent rebound in European markets, policymakers need to be seen doing more to bring the bloc’s sovereign debt problems to an end.
“Measures to end the systemic threat in Europe would be a basis for the bull market that started in March 2009 to continue beyond the current trading bounce,” O’Neill writes.
As well as European equities, O’Neill gives a negative outlook to government bonds and commodities. He says government bonds “only offer value in a double-dip environment”, while the commodities sector is becoming increasingly dominated by liquidity flows and the US dollar call.
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