Global stock markets are unlikely to bottom out soon amid recession fears, said Business Standard in a report, quoting analysts at Nomura. Nomura expects the US economy to see five straight quarters of declining GDP (gross domestic product) growth, however, the silver lining, is that the recession will be shallow. The report further noted that the peak-to-trough decline in US real GDP of around 1.5 percent in this cycle compared to the decline of nearly 10 percent during the pandemic and around 4 percent during the global financial crisis, Nomura said.
“History shows that stocks tend to bottom out during recessions—and not before —and thus, if Nomura’s macro view does materialize, investors will probably have to wait longer for a likely bottom in global stocks. Asian stocks will not be fully immune, but we expect some differentiation,” Nomura stated.
It is important to note that over the past few months, most global central banks have tweaked their monetary policy to combat the rising inflation.
Inflation concerns, geopolitical issues and rising interest rates have kept the market sentiment weak. The S&P 500 lost nearly 20 percent year-till-date (YTD). Back home, the BSE Sensex and the Nifty50, too, have shed 9 percent each in this period.
As regards valuations, Nomura believes stocks have largely (if not fully) priced in expectations of higher policy/discount rates. However, they do expect the markets to remain choppy in the near term, as investors debate “hard landing” versus “soft landing” (of the economy), and the timing and duration of the next US recession.
“However, into late Q3-22, we expect some stabilisation in Asian stocks once/if there are clear signs that actual US inflation may be moderating and/or the Fed turns less hawkish. Spector of earnings downgrades will likely dampen Asia stock markets’ expected returns. The deeper the economic slowdown, the stronger the earnings downgrade cycle,” Nomura cautioned.