Forex Flash: Tracking global equity returns – Goldman Sachs

FXstreet.com (Barcelona) - According to the Economics Research Team at Goldman Sachs, “ We see medium-term equity return forecasts as particularly important in the current environment. Given the depth of the financial crisis, normalization will take a long time, and it is therefore important to map out the path towards recovery over the medium term.” Also with bond yields at extreme levels, and the drawdown risk in equities still high, we see intermediate term equity forecasts as a good way to quantify the potential medium- term costs of the near term safety of being in bonds rather than equities.

“Our returns are mainly driven by earnings growth. The paths that we expect for prices and earnings are shown in Exhibits 2 and 3. We expect annualized earnings growth ranging from 8% in the US to 21% in Japan. The strong earnings growth outside the US reflects a rebound from cyclically weak margins. We forecast P/E multiples to fall 1% annualized in Japan and rise elsewhere between 1% in the US and 4% in Asia ex-Japan.” they add.