Equities are poised to advance in 2013 as investors who missed this year’s gains try to chase the rally, according to Exane BNP Paribas.
The CHART OF THE DAY shows strategists’ recommended levels of stock holdings, as compiled by Bloomberg, compared with the performance of the Standard & Poor’s 500 Index. The suggested investment in shares was a record low 41 percent of portfolios in June and July, just as the gauge started a 12 percent surge.
A reversal of investor pessimism, near-zero U.S. interest rates, accelerating economic growth and favorable market valuations will boost stocks, said Graham Bishop, an equity strategist at Exane. He recommended buying European shares in January before an 11 percent gain in the Stoxx Europe 600 Index. The gauge is trading at 1.34 times the book value of its constituents, according to Bloomberg data. That compares with about 1.9 times in the past decade.
“This phase of the cycle tends to support a strong equity performance,” the London-based strategist wrote in his 2013 outlook published Oct. 29. “With valuations still low, markets can benefit from further multiple expansions as extreme risk aversion alleviates and low interest rates pull the cost of equities lower.”
Strategists’ recommended position on bonds rose to a record 39.8 percent in June, according to Bloomberg data. The average suggested allocation to cash this year has been 6.7 percent. The value of S&P 500 shares that changed hands on a monthly basis fell in August to the lowest since at least 1998, data compiled by Bloomberg show.
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