Credit Suisse skriver

Global equity strategy: The end of QE2

We think there are five key issues in the market now: i) the degree of overheating in GEM; ii) the roll-over in lead indicators; iii) peripheral Europe; iv) the sustainability of corporate margins and v) the end of QE2. We would place QE2 as being the least important among these. We are tactically neutral on equities but keep our S&P year-end target of 1,450.

komm,

1, till stor del inprisat, men behöver lösas för att vi ska se EM aktier outperforma. 2, tror det är en övergång till LOWER TRENDING GROWTH miljön mer än en recessions risk 3, till stor del inprisat. vid en riktigt defalut nyhet kan börsen hicka till men det är snarare en köpsignal än nåt annat 4, kommer på sikt bli ett problem för börsutvecklingen men vi är inte där än och 5, QE2 och QE3. lär bli svårt med QE3 då core inflation är rätt hög, jobben kommer förhoppningsvis igång under 2H11 men man ska aldrig säga aldrig!

The end of QE2 is not like the end of QE1: The end of QE1 was a problem (S&P peaked three weeks after the end of QE1 and then fell by 16%) as: a) employment growth was just 0.3% (cf our model that forecasts 1.5% annualised growth), with a 93% correlation between employment and the S&P 500; b) core inflation was falling (it is rising now); c) there was no bail-out facility in place for peripheral Europe (there is now and a 52% haircut is priced into Greece).

The end of QE2 has three areas of concern: a) bond yields: We think a rise in bond yields only becomes a major problem if 10-year real yields rise to 2%+ (from 0.8%)—this would lead to a sharp deterioration in fiscal arithmetic. Such a rise in real yields is unlikely to occur until there is a sharp pick up in loan growth, banks have 20%+ of assets in government securities or the Fed raises rates—none of these looks likely to us over the next 12 months. On our model, the fair value of the US 10Y bond yield is 3.4%; b) on equity valuations, bond yields would need to rise to c4ј% for equities to cease to be cheap; c) on funds flow: banks can partly (as in the UK) replace the Fed as buyers of bonds. On equity fund flows, the key determinants are: net corporate buying at 2.6X normal levels (amounting to an annualised $440bn) and sovereign funds (e.g. CIC) increasing their equity weightings. From a monetary point of view, the problem is when the Fed changes its language—not before year-end we think; or raises rates—potentially 2H12 (initial tightening moves produce c10% correction).