“The world economic outlook is set to brighten despite slack business conditions, creating a “sweet spot” for global equities, according to Montreal-based BCA Research.
BCA said a variety of factors — including a recent steep fall in European sovereign spreads, a decline in the yen and better prospects for the United States and China — give hope for investors and could outweigh current reasons for gloom.
“These conditions give global equities running room,” BCA said in a blog posted on its website.
“All of this suggests that the world economy will probably continue to operate at a pace that closes the output gap very slowly. This assessment is supported by the global inflation picture, which is either low of falling.”
The success of BCA’s forecast is at least partly dependent on continued easy monetary policy by governments. In addition, both nominal and real interest rates must stay low.
“This creates a ‘sweet spot’ for equity investors — modest growth, low inflation and negative real rates will support corporate earnings and embolden risk taking,” BCA predicted.
However, Marc Faber, publisher of the Gloom, Boom & Doom Report, predicts that global stocks may rise a bit further in the near term, but most countries will see drops of up to 20 percent this year.
And why will stocks fall?….”
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