The search for higher returns and accommodative monetary policy continue to lendsupport to equities but weak corporate earnings undermine the bull run,strategists at Societe Generale (Paris: FR0000130809 - news) say.
Global equity markets have rebounded after a poor start to the year, withthe MSCI World index rising 5.3 percent over the past 9sessions.
However, Societe Generale say the optimism is mistaken for as long as thereis no recovery in earnings.
"Enthusiasm for equities, in our view, continues to be driven by the lack ofreturns available elsewhere and an over-riding view that central banks willremain supportive of asset prices with very low interest rates," strategists atSociete Generale write in a note. "But equities still risk being undermined byterrible fundamentals."
Societe Generale warns of an earnings season that has largely beenlackluster, with momentum pointing to flat or declining profits.
The bank highlights the MSCI Eurozone index, which has risenover 50 percent since ECB President Mario Draghi's "whatever it takes" pledgeeven though earnings are 10 percent lower and continue to decline.
Rising equity prices are all well and good, the bank says, "but ultimatelyprofits need to improve as well."
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