Global Stocks Set for More Gains Amid Best Streak Since 2018

(Bloomberg) -- Global stocks are set to climb further partly because the damage to company profits from the pandemic may be less than feared, Citigroup Inc. said, adding to a drumbeat of growing optimism for equities.

Corporate earnings per share may drop by about a third this year, lower than an initial estimate of a 50% slide, strategists including Robert Buckland wrote in a report. The bank predicted a 4% climb for the MSCI AC World Local index by the middle of 2021, aided by central bank stimulus.

Global shares are on course for their fifth straight monthly advance, the longest such streak since early 2018. Coronavirus infections have surpassed 25 million and continue to climb, but investors are taking comfort from the global economic recovery, prospects for a vaccine and central bank support.

“Equity investors are now looking through a dire 2020 towards profit recovery next year,” the Citigroup strategists wrote in the Aug. 28 report. At the same time, they cautioned that the wider consensus for earnings remains overly optimistic, and that the global equity market’s valuation would be well above average.

U.S. equities “would look especially expensive” based on mid-2021 targets, and the best returns are now forecast in Europe and the emerging markets, according to Citigroup.

The U.S. Federal Reserve has indicated it will remain accommodative and seek inflation that averages 2% over time, a step that implies allowing for periods of overshoots. Stock investors so far are interpreting that as a positive backdrop.

“For as long as this unbounded enthusiasm and relentless commitment to support growth, almost to do whatever it takes by the Fed, is in place, I don’t think it’s sensible to start selling the market,” John Woods, chief investment officer for Asia Pacific at Credit Suisse Group AG, said on Bloomberg Television.

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