Posted : 2012-03-18 18:40
Updated : 2012-03-18 18:40

The bull market that few people believe in

Top 3 drivers of global rallies ― liquidity, corporate earnings, and risk appetite

By Kim Jae-kyoung

You may not feel it but a bull market has come back on stage. Although investors and policymakers are not so sure or are little aware of it, we have just lived through one of the greatest bull markets in history. The U.S. stock market has hit a five-year high, while European markets are behaving as if everything is fine.

Despite lingering uncertainties seizing the world economy, the global financial market has weathered numerous challenges and has continued on an upward spiral. Market rallies are being spotted worldwide — North America, South America, Europe and Asia. Bolstered by strong performance abroad, the domestic market has also enjoyed a sustainable ascent.

Last Wednesday, the U.S. stock market had its biggest gain of the year. Both The Dow Jones Industrial Average and the tech-laced NASDAQ composite index broke the psychologically-important levels of 13,000 and 3,000, respectively.

The Dow closed at 13,177.68 on that day, the highest level in 50 months, while the NASAQ ended at 3,039.88, the strongest since 2000. Standard & Poor’s 500 also surged to 1,395.95, its highest level in 46 months. Europe stocks also rose to their highest level in eight months.

The key reason for omnipresent rallies is the revival of risk appetite among global investors. Risk-loving investors, who scrambled for an exit from stock markets following the outbreak of the eurozone crisis, are returning. The CBOE (Chicago Board Options Exchange) volatility index, known as the “fear gauge,” which reflects investor anxiety, fell to a nearly a five-year low Tuesday.

There are three key triggers that have been stimulating risk appetite. Fears of the eurozone debt crisis spinning out of control have been eased, turning around investors’ sentiment. Besides, global companies Apple and Volkswagen surprised the market with impressive earnings. Finally, central banks around the world have kept channeling new liquidity.

Bearish observers are issuing warnings against optimism saying that financial markets are overheating today. However, a growing number of investors and analysts are moving into the optimistic camp believing that there is still much room for stocks to move upward.

“I have been, and remain bullish. The rally is based on the recovery of the U.S. economy, against the background of the rising power of China and the other BRIC economies,” Goldman Sachs Asset Management Chairman Jim O’Neill told Business Focus via email from London.

“Of course stimulative policies of the major central banks are also supportive. I did and still expect a 20 percent rally of the S&P 500 and other major markets in 2012,” he added.

Liquidity rally

The bullishness in the current market is widely considered a liquidity rally. Central banks’ liquidity injections over the past year are now making their way through the real economy.

The European Central Bank (ECB) is estimated to have supplied 1 trillion euro ($1.3 trillion) to banks in the region through its long-term refinancing option (LTRO), which allows banks to raise funds for three years at 1 percent. This is the reason why European investors turned to “buy mode.” The U.S. Fed has extended its commitment to keep near zero interest rates up to 2014, while the Bank of England expanded its quantitative easing (QE) program.

On Tuesday, the Bank of Japan (BOJ) kept its key interest rate unchanged at between zero and 0.1 percent, while boosting a loan program by 2 trillion yen ($24.4 billion) to 5.5 trillion yen. The Japan Bank for International Cooperation has decided to extend low-interest dollar loans to Sony Corp. and Toshiba Corp. through major Japanese banks to help finance their acquisitions of foreign companies

A shift toward monetary easing is also the trend in many emerging countries — China, Brazil and South East Asia. Brazil’s central bank opted for an aggressive 0.75 percentage point cut, to 9.75 percent, at its most recent rate-setting meeting on March 7. The Reserve Bank of India kept its policy repo rate on hold at 8.5 percent Thursday. It also lowered reserve requirement ratios by 0.5 percentage points.

Market analysts say that central bank stimulating policies helped ease some global fears, which have been omnipresent until recently.

“With central banks continuing to push for growth, it is reasonable to expect further capital inflows and a further liquidity-driven rally. On the domestic front, most economic data releases support monetary easing action, especially as inflation has been easing,” Natixis economist Edgardo Torija-Zane said.


Apple effect

Another key engine for the recent market ascent is improvement in global firms’ performance. Global technology giant Apple and Volkswagen of Germany recently announced record results, giving further momentum for markets to fly higher.

Apple posted net profits of $13.1 billion in the first quarter of fiscal 2012, up 118 percent from a year earlier, which further boosted its shares. Apple stocks have risen by 30 percent this year, helping the NASDAQ blast above the 3,000 milestone.

Volkswagen recorded operating profits of 11.3 billion euro, leading the rise of the German stock market. The DAX went over 7,000 Wednesday for the first time in eight months.

South Korea’s tech giant Samsung Electronics also posted 165 trillion won (approximately $146 billion) in annual sales and 16.2 trillion won in operating profits last year. The sales figure is the highest-ever in the company’s history. Samsung Electronics shares hit a record high of 1.25 million won Wednesday.

Market Force Company CEO James Rooney points out that earnings surprise by global players, particularly Apple’s handsome performance, is buttressing the market rise.

“Apple’s continuing success and the reflection of that success finally are starting to show up in their market valuation — now over $544 billion, up from less than $400 billion just months ago,” Rooney told Business Focus.

In fact, shares of Apple, getting a boost from anticipation of the new iPad, passed $600 at one point in Thursday’s trading session. The rise gave the company a market valuation of about $552 billion. Apple started selling the new iPad Friday.

“And presumably that success will continue to flow through to the many suppliers and distributors that are riding the Apple Wave, as well as secondary effects that will start to show up in various forms of higher productivity and greater efficiency of other economic activities that are able to extract serious benefits from the iPad effect,” he added.

Investors are also betting on earnings improvement, believing that U.S. and European economies will bottom out this year.

“Growth optimism is behind the rallies. The optimism is due in part to G3 central banks turning more accommodative since late 2011. The rally is sustainable as long as the data support the growth optimism,” ING Group senior economist Tim Condon said.

Light at the end of tunnel?

The last key driver that has turned around the global market is Greece getting out of default territory. The country has secured another bailout and avoided a messy default on its debt obligations.

Global ratings agency The Fitch upgraded Greece Tuesday to B minus from “restricted default” after Athens carried out the biggest debt write-down in history in a bond swap with private creditors.

The ratings agency said that Greece is no longer in default but slow reforms, political uncertainty and recession could push it back toward bankruptcy. The lift was the first such move by a ratings agency to get the country out of default territory after the debt swap cut Athens’ debt mountain by about 100 billion euros.

It was the first time Greece’s rating had been raised since the debt crisis erupted at the end of 2009 and the first Fitch upgrade since 2003, but the B minus rating still places Greek government bonds in “junk status.”

With debt fears eased in the region, yields on Italy’s 10-year treasury bonds dipped to 4.86 percent Wednesday from the 7 percent level. Yields on Spain’s treasury bonds also fell to the 5 percent range.

The economic backdrop in the eurozone is also showing signs of improvement. The Mannheim-based ZEW economic think tank’s monthly survey of economic sentiment jumped to 22.3 in March from 5.4 the previous month, the highest level in 21 months since June 2010, supporting hopes that Europe’s largest economy has recovered from a weak patch.

The think tank said that surprises for German businesses will be positive and that the worst for the eurozone banking sector was widely seen as over.

Global economists have turned more upbeat about the financial market but they still remain cautious about forecasting its future course, saying that there are still plenty of challenges preventing a recovery.

Cautious optimism prevails

They point out that only if economic indicators in major countries such as the U.S. and Europe continue to improve, will the current rally be sustainable.

“The current rally is mostly just being driven by relief from the downward pressure that have previously been coming out of Europe. So it is a rebound and not likely to have sustainable energy beyond that. There are just too many challenges and uncertainties still embedded in both the U.S. and European economies,” Rooney said.

“The market is also still constrained by fears of slowing growth and internal economic challenges for China.”

Condon of ING echoed the view, saying, “The G3 economies — the U.S., European Union and China — are not growing fast enough to be able to withstand an adverse impact like an oil shock. If growth falters, the return of double-dip worries would likely end the rally.”
관련 한글 기사

2012 글로벌 금융시장 미스테리!

― 불확실성 속에서 강세장 이끄는 세가지 _ 유동성, ‘애플 효과’, 위험자산 욕구 부활

― ‘글로벌 주식시장 올해 20프로 상승 예상,’ 골드만삭스 자산운용 짐오닐 회장

당신은 미처 느끼지 못하고 있지만 불마켓 (bull market 강세시장)이 돌아왔다. 투자자 조차도 확신하지 못하고 있지만 우리는 역사상 가장 큰 상승상 중의 하나를 막 지나고 있다. 미국 주식시장은 5년래 최고치를 기록하고 있고 유럽 금융시장은 마치 아무 일도 없는 것처럼 안정을 되찾아 가고 있다.

세계 경제를 짓누르고 있는 불확실성에도 불구하고 글로벌 금융시장은 여러 도전들을 헤쳐나가면서 북미, 남미, 유럽, 아시아 할 것 없이 전 세계적으로 가파른 상승세를 보이고 있는 것이다. 국내 증시도 해외 증시의 영향으로 상승세를 보이고 있다.

지난 수요일 다우존스는 4년 2개월 만에 최고치인 13,177.68로 장을 마쳤고 나스닥은 2000년 이후 처음으로 3000 고지를 돌파했다. S&P 500 지수도 3년 10개월 만에 최고치 기록을 다시 썼고 유럽시장도 8개월 만에 가장 높은 지수로 장을 마감했다. 같은 날 한국 코스피도 연중 최고치를 기록했다.

전 세계적인 상승장의 원인은 투자자들 사이에 위험자산에 대한 욕구가 살아난 것이 가장 큰 이유이다. 유럽발 재정위기 이후 주식시장을 떠났던 투자자들이 돌아오고 있다. 지난 화요일 시카고 선물 거래소 공포지수 (volatility index)는 5년 만에 최저치로 하락했다.

시장의 불확실성이 가득한 상황에서 위험자산에 대한 욕구를 자극해 상승장을 이끌고 있는 동력은 세가지다. _ 풍부한 유동성, 애플효과 (기업실적 개선) 그리고 유럽 재정위기에 대한 우려 감소. 그리스가 디폴트 공포에서 벗어나 유로존 재정위기가 악화될 것이라는 우려가 완화 되면서 투자 심리가 살아났다. 또한 애플 등의 글로벌 회사 실적이 개선된 점도 투자자들을 주식시장으로 회귀시키고 있다. 마지막으로 주요국 중앙은행이 지속적으로 유동성을 공급해 왔던 효과가 나타나고 있다.

비관론자들은 ‘현 시장은 과열된 상태’라며 지나친 낙관론에 경고를 보내고 있다. 하지만 다수의애널리스트들은 향후 주식시장이 추가로 상승할 여력이 많다고 보고 있다. 그 중 가장 대표적인 애널리스트가 골드만 삭스 자산운용의 짐 오닐 회장이다.

“저는 이전에도 그랬고 현재도 여전히 강세장을 예상합니다. 현재의 랠리(rally)는 중국 및 그 외 BRIC (Brazil, Russia, India and China) 국가 들의 성장으로 미국경제가 회복되고 있는 것에 원인이 있습니다,” 짐 오닐 회장은 비즈니스 포커스와의 이메일 인터뷰에서 이와 같이 말했다.

“물론 주요국 중앙은행의 부양책도 상승장을 뒷받침하고 있습니다. 올해 연간으로 S&P500 및 주요 주식시장이 (전년대비) 20프로 정도 상승할 것으로 예상합니다.”

영문기사 및 한글 정리: 코리아타임스 경제섹션 비즈니스포커스 (BusinessFocus) 에디터 김재경

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