Stocks rally may not be sustainable

Stocks rally may not be sustainable: Prudential

2009 is likely to be a year of further pain rather than recovery, says Prudential Asset Management, adding that real recovery after a banking crisis will take years.

PRUDENTIAL Asset Management, which manages US$19 billion (RM69.35 billion) of life insurance money in the region, said the recent share market rally may not sustain because real recovery after a banking crisis will take years.

Corporate earnings may not recover to trend for a few years, said Kelvin Blacklock, chief investment officer of global asset allocation. "Historically, financial crisis take a long time to work through and are very painful," he said. "Based on experience, 2009 is likely to be a year of further pain rather than recovery.

"Equity is getting ahead of themselves. We are quite sceptical that this can be sustained. It's probably a bear market rally,"

At present, the fund is only 10 per cent invested in stocks, mainly Russia and Turkey shares which he said are cheap and may offer the best returns. It is holding another 30 per cent in bonds, mostly US credit and the rest is in cash. "Maybe we've lost some opportunity (in the current rally), but I'm willing to be patient and hopefully we could buy more cheap stocks later," he said.There are still some "big picture" concerns, he said.

Financial confidence and final consumer demand are two key aspects that must improve to make recovery possible. "Our concern is that policy measures are still not enough to address the essential issue, which is to recapitalise the insolvent banks," Blacklock said.

If policy makers do not stabilise demand and solve the banking crisis by carving out bad assets from lenders and recapitalise the insolvent banks, then there may be a secondary downturn in growth, profits and share prices, he said."That means the current stabilisation in economies may not be sustainable and further macro deterioration could take equity valuations back to recent lows," he added.

Moreover, the US consumers, who are a major source of final demand in the world economy, are still suffering. "This leaves global final demand vulnerable and suggests it is too early to expect a sustainable recovery yet," Blacklock said.

http://www.btimes.com.my/Current_News/BTIMES/articles/kelv/Article/