In the medium term, DWS sees the highest potential in Asia stocks.
“In the second half of this year, the trend in Asia could turn positive. Provided that corporate profit growth will gear up again”, says Sean Taylor, chief investment officer of Apac at DWS said in a report.
Chinese stocks, which look back at a difficult 2021, could also have catch-up potential from the second quarter onwards. Positive earnings revisions, the successful implementation of new regulations and a recovery of consumption could prop up prices, according to Taylor.
If the restrictions caused by the pandemic are rolled back and energy prices fall from their record highs, stocks from Asian countries such as India or Indonesia could benefit, he added.
Moreover, the beginning of a rate hike cycle is not necessarily detrimental for stock markets, according to DWS. Shortly before and in the twelve months after the first hike in the past, the S&P 500 performed well most of the time, due to sound economic growth and rising corporate profits.
“Times will certainly become somewhat rougher on the markets, as the first weeks of this year have already shown. However, on a 12-month horizon, we stay with our positive assessment of equities”, Stefan Kreuzkamp, DWS chief investment officer, said.
The market should be able to come to grips with US treasury yields rising to no more than two percent.
“In our baseline scenario for global equities, we assume high one-digit solid economic growth rates as well as corporate earnings growth rates per share,” Kreuzkamp said.
DWS’s year-end targets – 5,000 points for the S&P 500 and 17,000 points for the German Dax – should thus be well within reach, he said.
German industrial companies had a good start into the new year with full order books. One main reason should be pent-up demand caused by the pandemic. This was not reflected in stock prices of late. Expectations of higher interest rates have been a real drag, he explained.
As for equities in Eurozone, Kreuzkamp believes the growth outlook for the Eurozone is good, but its dynamics should have peaked already.
The development of corporate earnings justifies optimism: the earnings of two thirds of corporations have beaten their forecasts.
Eurozone stocks should be able to benefit from the ongoing economic recovery, according to Kreuzkamp.