A Thai investor checks an electronic board showing Asia Plus Securities stock prices 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 resumption in income growth and rehiring.
In its investment outlook for the second half of 2021, Credit Suisse has predicted that the global economy will grow by 5.9% this year and 4% in 2022. This growth will be driven by the deployment of vaccines, measures to fiscal stimulus and a broader recovery of services. He also said that the United States is expected to grow at a rate of 6.9% this year, the Eurozone is expected to grow 4.2% while Asia excluding Japan is expected to grow 7.5%.
The economic expansion is likely to lead to a strong pick-up in global earnings growth that should fuel the stock market, according to Ray Farris, chief investment officer for South Asia at Credit Suisse.
“We are looking for stocks 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” Thursday. “As long as earnings continue to rise, history suggests stocks will continue to climb.”
“There will be fixes from time to time, but those fixes would really be opportunities,” said Farris.
In the equity market, Credit Suisse said it preferred exposure to cyclical sectors such as financials and materials. Cyclical stocks are companies whose underlying businesses tend to follow the economic cycle of boom and bust.
The bank also favors cyclical markets in Europe such as the United Kingdom, Germany and Spain. Farris explained on CNBC that Europe, as a stock market, will produce roughly the same profit growth as the United States in 2021, but that it is doing so at “valuations that are literally at the lowest of several decades on a relative basis “.
“You are putting Europe on sale as it emerges from the pandemic, as it reopens and growth accelerates,” Farris said, adding that the UK was exposed to finance and the global economy while Germany was exposed to cyclical sectors.
In Asia, the bank’s preferences are Korean and Thai stocks, which can potentially benefit from the global chip shortage and global reflation trends. Thai stocks should also benefit from a rally in oil prices.
Credit Suisse is neutral on Chinese stocks, citing slower growth momentum after the pandemic normalizes and regulatory risks to market sentiment.
Farris pointed out in a separate press briefing that asset markets and asset prices remain supported by monetary policy in the United States, Europe, Japan and other countries.
“Central banks, core central banks, are likely to continue to expand their balance sheets, pumping more liquidity into the systems, until the end of the year,” he said.
Inflationary pressure and inflation risks have increased in recent months, according to the bank. He expects inflation to temporarily exceed central bank targets in major economies as service sectors reopen. Persistent price pressures would prompt the US Federal Reserve to quickly withdraw monetary accommodation measures – in the form of monthly asset purchases to stimulate the economy – Credit Suisse said.
Farris said he doesn’t expect the Fed to announce a decision until the end of the third quarter and beyond, and that the actual reduction won’t happen until 2022. In addition, interest rates are expected to remain unchanged until 2023.
“So it’s a very favorable monetary policy environment for risky assets,” Farris said.