Most rich-world stock indexes will recoup in 2012 only a fraction of their huge losses this year, a Reuters poll showed on Thursday, with the threat of economic catastrophe in Europe hanging over developed and emerging markets alike.
Trillions of dollars have been wiped from share prices in 2011 and only six out of the 19 indexes covered by the survey are expected to finish next year higher than their 2010 closing levels.
The quarterly poll of around 350 equity strategists and economists was conducted before major central banks coordinated together in an unexpected move on Wednesday to provide cheaper dollar funding, which sent global stocks soaring.
Brazilian, Chinese and Russian stock markets will likely top the chart for performance, the poll showed, with gains of more than 20 percent from now until the end of next year.
By contrast, stock indexes in European countries that likely face recession look set for very mediocre gains, barely making a dent in their double-digit percentage losses endured this year. Indeed, that might even prove too optimistic.
Britain's FTSE 100 and the FTSE MIB in Italy, now at the heart of the eurozone's debt crisis, look set for a particularly disappointing year.
Analyst forecasts assumed no catastrophic escalation of the debt crisis such as a break-up of the eurozone, a scenario that would most likely plunge global financial markets into meltdown.
Indeed, a firm majority of respondents who answered an extra question — 31 out of 39 — said stock markets had not adequately priced in a break-up of the eurozone in some shape or form.
"Putting the pieces together, we think euro area economic and financial risks are likely to remain centre-stage for now." said Jan Hatzius, chief economist for Goldman Sachs, in a note.
"We forecast further falls in equity markets, most notably in Europe, over the next three months."
A poll of leading academics and former policymakers last week suggested the euro area will not survive the crisis intact in its current form.
The emergency move by the world central banks to cheapen dollar funding for stressed eurozone banks recalled coordinated action to stabilize global markets in the 2008 financial crisis after the collapse of Lehman Brothers.
The major indexes covered by the survey are currently trading at a 12-month forward multiple that is lower than their long term 10-year averages, according to Thomson Reuters I/B/E/S data.
Chinese stocks are trading at almost half their average 10-year value, followed by stocks in the UK, France, Hong Kong and Germany -- all of which are cheaper by a third according to present prices.
All of the stock markets covered by the Reuters global poll are currently in the red for the year, apart from the Dow Jones Industrial Average and South Africa's JSE Top 40.
Reuters monthly polls of asset managers on Wednesday showed a general decreasing trend in equity allocations to levels seen around the Lehman failure, and a growing aversion to European assets.
Britain's FTSE 100, Europe's biggest by market capitalization, will probably see scant gains over the next year of less than 2 percent.
Growth prospects for the UK economy are dismal and it is hard to see what will drive stocks there higher.
"The European sovereign debt situation will be, and is, a massive cloud to the overall economic outlook," said Michael Hewson, market analyst at CMC Markets.
Italian stocks, which have lost almost a quarter of their value this year alone, are not likely to recover much next year. Italy now finds itself at the centre of the eurozone debt crisis and a lack of confidence among investors will do its share market little good.
LEADING THE WAY
Brazil's Bovespa should gain around 23 percent to end-2012, topping the list of expected outperformers.
"Brazil's economic fundamentals are still very solid," said Octavio de Barros, chief economist at Bradesco. "Most companies are much below fair value, and stocks will become a much more attractive asset as interest rates fall."
Moscow's RTS, a perennial favorite among the Reuters poll's equity market bulls, is expected to jump around 20 percent.
The Shanghai SSE Composite Index is predicted to do even better, rising 22 percent after a couple of years of steep losses.
Overall, Asian shares are expected to excel in comparison with the muted returns in rich-world markets.
Sydney's S&P ASX 200 will top equity gains among the developed markets, surging around 11 percent from now until the end of next year, according to the poll consensus.
The S&P 500 has performed far better than European shares this year and is expected to gain more than 7 percent by end-2012.
France's CAC 40, which has performed terribly in 2011 with a 17 percent loss, will at least claw back about 9 percent through to the end of next year.
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