In Luc Besson’s science fiction film of 1997, “The Fifth Element”, the world constitute the five essential elements, including wind, fire, water, soil, and the power of the human spirit, and last month’s round of global stock market rebound the five elements happen to be driven by the respective trends of U.S. policy, Europe and the United States banking situation, China’s economic performance, progress in the eurozone crisis, and corporate performance results.

Elements of a U.S. policy to maintain loose. Secretary for the Federal Reserve Ben Bernanke in his semi-annual monetary policy report warned Chen, the U.S. economic outlook, “Yichang Bu uncertain,” and stressed that the Federal Reserve Board may in there to take such further measures to stimulate growth. This statement seems to confirm that the Federal Reserve to prevent the recovery of blocked and does not intend to raise interest rates, but also may further relax monetary policy.

Element 2, the banking sector worries less. U.S. financial regulatory reform bill would focus on firepower to protect consumers, not against investment banks. The EU also announced after the Bank of stress test results, and found that only seven banks failed, given less than a total of just 35 billion euros, the European banking stocks triggered recovery. Finally, the new Basel II by the European regulatory framework, the initial proposal may no longer contain a number of more stringent capital requirements.

Elements of the three, China’s economic growth cooled. Recent economic data confirm that growth is slowing in line with the Government hopes will cool the economy. Therefore, the risk of further regulation and control has declined.

Element 4, the euro zone to ease the debt crisis. As the Greek better than expected macroeconomic data, coupled with strong economic data in the region surrounding the eurozone bond market and the German interest rate differential between government bonds in the July quarter.

Element 5, amazing performance of the company. U.S. and European companies for the second quarter earnings results than expected, surprised the market, the United States and many European banks have annual data increased significantly.

Morgan Asset Management believes that these five elements, driven by the recent global stock market investment climate improvement. However, the atmosphere changes to improve the fundamental factors does not mean that change for the better growth prospects, the existing financial, growth and strong earnings outlook before the haze dissipated, is expected to remain volatile market conditions.

Looking ahead, our basic forecast of global economic recovery to continue. However, as described by the European Central Bank President Jean-Claude Trichet, recovery should be “slow and uneven.”

Our current global economic recovery remains cautiously optimistic about corporate earnings are still plenty of power, while the major countries of negative real interest rates, stimulate the environment should not be underestimated. However, if asset prices fall further, both the U.S. residential property UK, Europe, global sovereign bonds or shares, will constitute a threat to the global growth. If investor risk sentiment is weak, the stock market in the short term may still be subject to large fluctuations, which show repeated loading pattern.

To change this situation and restore investor confidence, the following four must be able to hold: first, the second half 2010 earnings growth is still robust; followed by PE realistic valuation calculation; Furthermore, the current dividend yield is not huge be reduced; Finally, the high risk premium of stocks is not a “value trap.”

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Category: Business Management
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