Tuesday, September 05, 2006

Growth in world stock indices

The stock market has enjoyed a couple of weeks of continuous upside momentum with falling oil prices and the fed sitting on the sidelines to cool off the inflation. In this article, we will look at the major stock indices in the world and see potential upside/downside in the coming months.

SP500 closed at 1313.25 today with a trailing P/E of 18. The index has an yield of 1.8% and has gone up by about 5% thus far this year. It looks as though the index has some room to run in the next six months despite a slowing economy. If the economy doesnt tank, it is my hunch that SP500 can grow between 2 and 4% for the rest of the year. This should provide a range of 1340 to 1375 for this index. The SP500 index is also off its peak value in May.

In North America, the commodities driven Canadian index is off of its April highs and has room to run. This is also true of the Brazilian index which is also off its highs.

Another important set of indices are in Asia. The Hang Seng index in Hong Kong has hit its yearly peak and is continuing to do well. The markets in India are off its peak as are the indices in Taiwan and Korea.

In Europe, the Swedish exchange is at all time highs and some of the other exchanges are off of their yearly highs.

The world GDP is expected to grow strongly this year with growth in the rest of the world surpassing the growth in the U.S. The decline in energy prices should continue to spur economic growth around the world. The current slowdown may be termed as a mid cycle slow down and the cycle has legs to run till 2009 or 2010. This is expected to show in superior stock market gains in the rest of the world, particularly in the emerging markets. It seems that the emerging markets have 5-10% upside from their current prices in the next three - six months.

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