EQUITY markets have bottomed out and there is growing evidence to support the ‘green shoots theory’ that is gaining momentum, according to BlackRock’s global equities head.

Mr Bob Doll, vice-chairman and chief investment officer of global equities at the investment firm, said yesterday at a media briefing in Singapore that equity markets were up more than 30 per cent since the last low of March 6, when the Standard & Poor’s 500 index dropped to 666 points.

And, there was only ‘at most a 20 per cent chance’ of the S&P falling below that level from now on, he said.

Mr Doll explained there were three factors indicating the latest bear market rally was different from the four previous abortive ones.

First, the current surge has been marked by strong momentum and expanding volume.

Second, more cyclical areas of the market, such as consumer spending and technology, have been outperforming – trends that tend to occur when recoveries begin.

And third, earnings estimates during the other four rallies had continued to come down, whereas they are currently stabilising or moving slightly higher.

Mr Doll said it was, however, premature to call the start of a new bull market.

Over the coming months, he predicted that the United States would outperform Europe and emerging markets would outperform developed ones.

Policy responses to the credit crisis had been stronger and more rapid in the US than in other markets, he noted, with US stocks tending to be less volatile than those in most other markets.

But do not expect a consumption-led recovery, he said, as the US consumer’s savings rate had upped from zero to 5 per cent, and may rise further to 8 or 10 per cent.

‘There is a prospect that we will witness the start of an economic recovery by the end of the year, and that could lead into sub-par, but positive growth in 2010,’ added Mr Doll.

Compared with western economies, he could see ‘particular pockets of strength in Asia’ driven by the Chinese consumer sector, which is being fuelled by the country’s massive stimulus programme.
The property market in Hong Kong is showing signs of stabilisation, thus providing opportunities there, he added.

As for green shoots, Mr Doll cautioned: ‘There is evidence for better things coming. But green shoots mean the majority of what we’re looking at is brown.’

Source: Straits Times, 19 May 2009