Bloomberg News

Stocks Show Earnings Outlook ‘Too Pessimistic’: Chart of the Day

January 06, 2012

(GRAPHIC: COD_EARNINGS_OUTLOOK_010612. CHART OF THE DAY. Size: 3C X 4in. (146.0 mm X 101.6 mm) Expected by 15:00.)

Jan. 6 (Bloomberg) -- Earnings probably will be little changed worldwide this year even though stock prices suggest they are poised to tumble, according to Robert Buckland, Citigroup Inc.’s chief global equity strategist.

As the CHART OF THE DAY shows, the MSCI World Index is valued at 13 times earnings, lower than its average of 17 times for the past four decades. The chart depicts the price-earnings ratio since 1995 for the index, composed of stocks which trade in developed markets.

Investors appear to be bracing for a 20 percent earnings decline in 2012, Buckland wrote in a report Wednesday. He cited estimates made by Citigroup’s regional strategists.

“This seems too pessimistic, even for recessionary Europe,” he wrote. Earnings per share will rise 0.5 percent worldwide as profit growth outside of finance exceeds declines among financial companies, according to the report. For next year, he expects a 10.4 percent increase.

Stocks will rise this year as investors’ worst fears aren’t realized, according to Buckland, who is based in London. He estimated that the MSCI All-Country World Index, a barometer of emerging markets as well as countries in the MSCI World, will climb 20 percent to 360.

Citigroup expects gains of more than 10 percent in the U.S., the U.K., Europe, Japan, the rest of Asia and Australia this year. MSCI’s Emerging Markets Index will set the pace by rising 34 percent to 1,225, according to its strategists.

--Editors: Joanna Ossinger, Nick Baker

-0- Jan/06/2012 19:01 GMT

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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