Goldman would buy a correction in global markets

by BLOOMBERG

LONDONGoldman Sachs Group Inc predicts a correction in global stocks is on the horizon, but says any such pullback would be a buying opportunity.

Strategists at the US bank say signals are flashing for a drop of 10% to 20% in equity prices in the coming months. Goldman’s risk appetite gauge is hovering near a record high, indicating a sharp rise in investor optimism, while traders seem complacent about political risks like Italy’s national elections, they say. Still, the risk of a full-blown bear market is viewed as low, as strong and synchronised global growth provides a reason to stay bullish.

“We do not believe that this would be prolonged or morph into a bear market,” strategists including Peter Oppenheimer wrote in a note yesterday. “Historically, there are many examples of corrections that are short lived and do not turn into more drawn-out bear markets that are typically associated with economic weakness.”

Goldman, which remains ‘Overweight’ global equities, defines a bear market as a drop of 20% or more.

The amount of value added to US equities in January is poised to exceed any month on record, data compiled by Bloomberg show, while the MSCI AllCountry World Index is trading near an all-time high, buoyed by optimism over growth and corporate profits. While the recent strength of global stocks does not mean they must enter a correction phase, it suggests one is overdue, Goldman says.

“Rising valuations, amid increased optimism, make the market more vulnerable to a setback even if the underlying trend remains intact,” the strategists wrote. — Bloomberg