LATEST NEWS

NOMURA: It's The End Of The End Of The World

AP Photo/Ben Berry

Japanese investment bank Nomura is out with a big global economic outlook for 2014.  The title is "The End Of The End Of The World." The theme is that as 2013 comes to a close, the age of crisis is well and truly over. There are still lingering issues of course, but the really huge themes that have dominated the past several years are gone, and concerns over systemic risk will no longer be high on investors minds.

Strategist Michael Kurtz and Co. write:

There wasn’t any memo, but FYI the Global Financial Crisis is over. Not that clocks have simply rewound to 2006, but: the US property market has been recovering for no less than 20 months, the US household balance sheet is largely repaired, the renminbi is stronger and the US-China current account imbalance vastly reduced, China is grasping the nettle of structural reform, European core-vs-periphery cost differentials have substantially narrowed, and Europe is growing again.

Looking forward, we thus see 2014 as a year in which macrosystemic risks will not dominate equity performance – unfinished QE ‘taper’ business notwithstanding – but equally as a result, a year in which returns will not be spirited along by ‘risk compression’ and multiple expansion either. Rather, global stocks in 2014 will stand or fall in large part simply on whether they deliver earnings. The good news is, 2014 should serve up a reasonably robust growth platform for global corporate earnings: Our economists expect global nominal GDP growth to rise to 7.0% next year from 2013’s 6.1% -- leaving our strategy preferences inclined toward cyclical- and reflation-sensitive sectors. But the acceleration will be unevenly skewed toward the Developed Market economies, while Emerging Market growth plateaus and China’s growth further moderates (to 6.9% in real terms).

For investors, this is a double-edged sword.

Screen Shot 2013 11 27 at 5.45.33 AM

Nomura

The big call.

No longer will markets be able to make gains just by wringing out lingering fears of collapse. Markets are going to need actual growth.

They write:

Looking toward 2014, we believe much of the ‘deep value’ argument for stocks has now played out as the Global Equity Risk Premium has fallen to just 0.4 standard deviations currently vs. its late-2011 high of 2.2 standard deviations. With this, global equities have outperformed the aggregate global bond index since mid-2012 by a sizeable 45% over the same time period.

From here, equities will increasingly require more of a growth rationale for upside, rather than the macro-risk compression of 2012-13. The fact is, after fairly undramatic passages (by 2010-12 standards) of such episodes this year as the Cyprus banking failure and October’s US fiscal standoff, very few developments from here are likely to rise to the level of true systemic contagion threats. But this also begs the question where the superlative earnings growth will be found.

So where will that growth be found? Nomura's strategists are particularly bullish on Japan and Europe.

Conversely, they're concerned that the US will see margin compression (due to mean reversion) and like many others they're not particularly optimistic about emerging markets. As for sectors, they like tech, industrials, consumer discretionary stocks, and financials.

Again though, the big picture is that the days when stocks would rise just thanks to systemic fears dissipating is over. Now the hunt is on for real growth.



More From Business Insider

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.

DON'T MISS

  • Droom has made auto trade a breeze

    Its website lists everything that has a wheel and a motor - from bicycles and super bikes to luxury cars, planes and yachts. …

  • How Hike has taken on global competitors

    The messaging app company had zero users around January 2013. It crossed 35 million users in August 2014 and in January this year claimed over 100 million users. That is a mind-boggling number for any ... …

  • "Internet retailing of books is a wonderful development"

    Richard Charkin, Executive Director, Bloomsbury Publishing, talks to Sapna Nair Purohit about the changing publishing landscape globally. …

  • "India has a competent enough system to check quality standards"

    The $25-billion Indian pharma industry is going through intense regulatory scrutiny. Foreign drug regulators such as the US Food and Drug Adminis-tration (FDA) and EU's European Medicines Agency have increased ... …

  • Final Push

    GST infrastructure is a work in Progress. The government will have to burn the midnight oil if it wants to meet the April 2017 deadline. …

  • TRAI'S Web of Confusion

    The telecom regulator must first simplify its processes before dealing with net neutrality. …

  • Shop Till You Drop

    Once the model shops and establishments act comes into force, shops, malls and cinemas will be allowed to remain open 24x7. But does it make business sense? …

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    12.55+0.03+0.24%
    JPASSOCIAT.BO
    63.05+0.70+1.12%
    SPICEJET.BO
    168.95+11.70+7.44%
    VEDL.BO
    592.05+40.00+7.25%
    UFO.BO
    18.00-0.10-0.55%
    SUZLON.BO
  • Price % Gainers
    Price % Gainers
    NamePriceChange% Chg
    57.60+9.60+20.00%
    NTCIND.BO
    70.70+11.75+19.93%
    METALFORGE.BO
    30.45+4.95+19.41%
    RDBRL.BO
    11.99+1.89+18.71%
    NFIL.BO
    81.80+12.50+18.04%
    EMKAY.BO
  • Price % Losers
    Price % Losers
    NamePriceChange% Chg
    10.04-1.33-11.70%
    RATHIGRA.BO
    16.40-1.50-8.38%
    FILTRA.BO
    51.50-4.25-7.62%
    LOTUSCHO.BO
    48.10-3.95-7.59%
    COROENGG.BO
    158.35-12.90-7.53%
    GNFC.BO
  •  
    Recent Quotes
    Symbol Price Change % ChgChart 
    Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
    You need to enable your browser cookies to view your most recent quotes.
  • Recent Quotes News

    •  
      Sign-in to view quotes in your portfolios.

    Yahoo Cricket