Equity markets could rise 15% by end of 2020, Credit Suisse says
Equity markets could be 15% higher by the end of 2020 as government support for the economy pushes investors into real assets, Credit Suisse said in a strategy note.
Credit Suisse's analysts said they assumed a full lockdown in the US and Europe of between six and eight weeks. This is short3er than some others envisage but Korea and China show production can restart without a big rise in infections, the bank said.
There will also be far more ventilators, treatments and tests available in two or three months' time to deal with a second spike, which should infect fewer people because of social distancing, Credit Suisse said.
"This means that the welfare cost of not returning to work in two to three months could be considered higher by policymakers than the welfare cost of a lockdown," strategist Andrew Garthwaite and colleagues wrote in a note.
Central banks and governments are nationalising credit risk and sometimes wages and fiscal stimulus is vast. By suppressing real rates, central banks are pushing investors into assets including equities. Markets have also fallen by almost as much as the bear market average of 35% suggesting a 20% rally two months after lows is likely, the analysts said.
"We believe that governments will continue to nationalise credit risk as well as wage bills. Moreover, central banks are acting as a backstop to government debt and increasingly corporate credit, while getting close to ‘helicopter money’," the analysts wrote. "Falling real rates eventually favour purchases of real assets such as gold, real estate and equities."
The analysts said their major worry was US corporate debt which is back to its previous peak relative to GDP Credit Suisse said its risk case was a six-month lockdown and US corporates deleveraging, in which case earnings would fall 40% in 2020, 15% in 2021 and the S&P would drop to 1,600.