Market outlook: return to fundamentals

· The first half-year period was marked by the fear of a worst-case scenario that reached its height on 9 March, then by a sudden turnaround, motivated by normalisation of risk aversion. This short-term enthusiasm masked the continued deterioration in the background of growth prospects as well as of profits.

· The second half-year period has begun on a more balanced, if not perfectly healthy, basis. Volatility, although high, has returned to tolerable levels, the equities market is coming back into favour, the slump in expectations of profitability has almost come to an end and, finally, the precautionary airbags of liquidity, constituted at the beginning of the year, have deflated. In a nutshell, almost all of the technical, psychological and even the flow indicators have normalised fully and have led us to a crossroads.

· Consequently, the market is again relying on the mere fundamentals. As a reminder, when we talk about fundamentals, we mean essentially the profits of listed companies that will continue, in our opinion, to govern the behaviour of the stock market players in the months to come.

· This context leads us to maintain our prudent reading of the situation in the short term; the results season is likely to confirm the non-imminence of the end of the crisis, to use a euphemism, particularly in Europe. On the other hand, we continue to anticipate a gradual recovery during the course of 2010. The progress and the scale of the monetary and policy action in the United States lead us to favour this region at a time when Europe cannot yet anticipate a recovery and when some stock exchanges in the emerging markets have already anticipated it too early.

Results forecasts and evaluation of the markets

Results forecasts: continued dichotomy between the United States and Europe
· Revenue forecasts continue to fall for 2009 in the Eurozone (growth 2008/2009: -21.5%) and Europe (-18%) but have recovered slightly for the United States (-11.6%).
· Net up was even positive for the United States, and has recovered slightly for the Eurozone.
· We are not modifying our revenue forecasts, which are more pessimistic than the consensus.

Evaluation of the markets: markets are more attractive in terms of valuation
· Valuations stabilised, taking into account the drop in rates and the upwards revision of Earnings Per Share.

· The United States and particularly Europe seem to be correctly valued therefore.

Other factors:

- Small-caps: a good performance by European small-cap stocks at the beginning of 2009
· The face values of small-cap and medium-cap stocks appear expensive in relation to large-caps. However, in the Eurozone, the discount is significant if the growth in results (PEG) is taken into consideration.

- Liquidity: investors continue to return to equities funds
· Positive fundraising in the United States as in Europe (highest level for three years).
· Calls to tender have not slowed down, capital increases represented 78% of transactions and convertible bond issues 7%.

Graphical analysis: profit taking with low volumes
· In the short term the markets have entered into a period of profit taking around long-term moving averages and are likely to remain, for the next few months, in a wide range of between 2,850 and 3,500 for the CAC.
· In the long term, the markets remain in a “bear market” configuration and it would be premature to say that they have reached their lowest levels already.

These documents are published for information purposes only.
Groupama Asset Management takes no responsibility for information that may be incorrect.
Past performances are not indicators of future results.