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Credit Suisse: 5 signs for a V-shaped recovery of the markets

Credit Suisse Equity Strategy: We expect a V-shaped recovery ultimately and would be buyers of equities on a one-year view. We believe markets will rise 15-20% over the next 12 months, given:

Historically when we look at exogenous supply-side shocks, markets tend to rise very rapidly from the trough (SARS, Kobe earthquake, Suez, 1987). This is why 57% of the time we have entered a bear market, equities have been higher a year out (and in the case of 1966, 1982 and1987, up more than 20%). We would note that after some of these shocks (1987) the market had a double bottom over three months before the rebound;
Undervaluation of equities: clear-cut undervaluation using the ERP (8.2% versus a warranted of 6.3%) is discounting an 11% fall in earnings and ISM of 45
IG spreads are higher than the levels seen in the early 2000 and 1990 recessions. If spreads narrow, equities should rise;
We expect massive monetary and fiscal stimulus. With all central banks undershooting inflation targets and bond yields so low, we think it is only a matter of time before we get the appropriate response. This should enable a V-shaped recovery that by the end of 2021 could make up for much of 2020’s lost growth;
South Korea’s experience shows that infections can be brought under control with a limited economic hit. Large cap corporates in China are now 95% back to normal operations;


 Trader Georgi Bozhidarov


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