BGI advises schemes to avoid European stocks

It says business confidence is low which reduces corporate spending and the number of new workers being hired. This, says BGI chief economist Hadyn Davies, hits consumer spending which is flat across Europe.

And it ruled out export performance boosting the market in the short-term.

Davies said Europe’s “modest” public sector spending would fail to boost growth, especially when compared to what he called the “extravagance planned by the US and UK governments”.

Davies said: “European markets have fallen especially hard, despite having been spared the accounting scandals that have beset the US.

But weak demand at home and a slowdown in overseas sales do not bode well for firms’ profits, and investment analysts are very pessimistic.”

BGI added the only hope for European markets is an interest rate cut from the European Central Bank. But Davies said this was unlikely as the ECB was not as “impulsive” as other policy makers.

Meanwhile, PIMCO is urging schemes to avoid US stocks because they are still “massively overvalued”.

It attributes the overvaluation to what it calls “phoneyed up” company earnings, such as operating or pro-forma numbers. Pimco believes that at least half of all the earnings growth in the past 40 years had been “mystical”.

Managing director William Gross said: “Stocks stink and will continue to do so until they are priced appropriately, probably when the Dow Jones index is around 5000. Earnings have been phoneyed up for years, and the market still sells at high multiples of phoney earnings.”

And he asked whether stockholders are “naive, stupid, masochistic or better yet, in this for the long run?”.

Even when markets begin to rise again, Gross added that they are only likely to produce inflation-adjusted returns of around 5% if they mimic trends over the last 100 years.

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