Global Growth To Accelerate; Cyclical Equities Hold Appeal - Credit Suisse

Editorial Staff

1 September 2021

Global economic growth is likely to accelerate and will likely hit 5.9 per cent for 2021 and 4 per cent in 2022, led by vaccine rollouts, fiscal stimulus, and a broadening services recovery, Credit Suisse said in its mid-year report.

The bank continues to smile on stocks, arguing that they offer attractive returns over the medium term. High valuation levels and some stretched indicators of market sentiment are offset by supportive financial conditions and a constructive growth and earnings outlook. The Zurich-listed bank prefers cyclical markets such as the UK, Germany and Spain, in addition to cyclical sectors such as financials and materials. Within Asia, it likes South Korean and Thai equities.

On Asia specifically, Credit Suisse is staying neutral on Chinese equities because growth momentum in the country has slowed. It also thinks that regulatory risks are weighing on market sentiment, especially in the internet and property sectors, and this has dampened sentiment among analysts.

As far as Hong Kong goes, the bank is cautious. “While trade has been recovering strongly, the pick-up of consumption rests largely on prospects of border reopening and a resumption of international travel. Earnings have been lagging relative to other developed markets and forward-looking indicators like PMI and business surveys suggest the recovery is still soft,” it said.

Turning to Singapore, Credit Suisse said Singapore stocks, which are heavily weighted to banks, might benefit from the gradual rise in US bond yields while real estate investment trusts should gain from a revival of business travel and other services activity in the region.

“Singapore’s fast rollout of vaccinations places it in good stead to benefit from potential travel bubbles. At this juncture though, we expect equities to perform in line with global equities,” the Credit Suisse report said.

On Thailand, the bank likes its equity market. “We favour Thai equities which are likely to benefit from global cyclical recovery and the rally in oil prices as economically-sensitive cyclical sectors constitute a large share of the market. Moreover, the vaccination campaign in Thailand has begun and could renew hopes of an eventual resumption in international tourism,” it said.

Switching to India, Credit Suisse said the economy was recovering “quickly” with faster-than-expected regulatory relaxations as the COVID-19 contagion ebbs.

“The equity market has been more resilient to the second wave of infections, focusing on domestic growth and consumption. Margin pressures should be manageable as higher commodity prices are likely to be passed on to consumers. However, valuations are less attractive relative to other Asian markets,” it said.

Switching to more global themes, the bank said that inflation risk and inflation fears have risen. In that light, it expects the US Federal Reserve to start talking about winding down asset purchases – quantitative easing – and expects rate rises in 2023.

“Vaccination rates continue to rise in the industrialised world, reducing the need for social distancing. Economic reopening will likely lead to a robust recovery in revenue growth and rehiring. The more contagious variants remain a threat to vaccine immunity and may require additional shots. The probability of the US infrastructure investment plan passing Congress remains high. Fiscal policy in Europe has been less expansionary, but furlough programmes should run until late 2021 and underpin the repair of private sector balance sheets,” it added.