Global sell-off: Capital Economics revises equity forecasts higher


Capital Economics has revised up its forecasts for developed equity market performance this year, arguing that many downsides are now priced in.

The macroeconomics forecasting consultancy has lifted its outlooks for the FTSE 100, S&P 500 and Nikkei 225 for both this year and next. However, it adds that the upside for equities is limited.

Capital Economics chief global economist Julian Jessop says: “We had already anticipated a weak second half of the year, partly in anticipation of Fed tapering and partly due to concerns about the risks of a flare-up of the crisis in the eurozone.

“But Fed tapering would no longer come as a shock to the markets, and the risks of a meltdown in Europe have faded too.”

The consultancy now sees the FTSE 100 ending 2013 at 6,300 point – ahead of the 6,159.51 it closed at yesterday and up from 6,100 Capital Economics previously forecast. It also also held the 2014 forecast at 6,700.

Looking at the S&P 500, which opened today at 1,588.62, Capital Economics expect it to end the year at 1,600, up from the previous estimate of 1,500, and finish next year at 1,675 rather than 1,600.

The Nikkei 225 is tipped to see 2013 come to a close at 14,000, up from the last forecast of 12,500, and 2014’s estimate has been moved from 14,000 to 15,000. The Japanese market ended the last session at 13,230.13.

Jessop adds: “Admittedly, the upside for equities is also limited, given the fading support from US monetary policy and the stage of the profit cycle. However, the improving economic outlook should provide some comfort, especially in the US, and valuations are not outrageous.

“Accordingly, we expect steady gains in equity prices – nothing spectacular, but better than many might fear against a backdrop of rising bond yields.”