Analysts at the US investment bank Morgan Stanley are recommending that clients start to buy shares again after more than a year of falling markets. In an investment strategy report, analysts at the bank said that all four indicators they use to gauge the equity market outlook have started to indicate a turn in the downward trend.
"We have now come full circle: our market timing indicators are giving us a full house buy signal," said the statement. "Each of the four indicators – valuation, capitulation, risk, fundamentals – tells us to buy."
The report said that the catalyst for the change in outlook was that the last few investor groups – retail investors, sell-side analysts and purchasing managers – have "capitulated" to bear market sentiment. "The idea is that when these three groups know about the bad news, equity prices are probably already reflecting it," it read.
The note recommends that investors keep shares in their investment portfolios to take in the expected growth.
It comes after months of stock market falls that have seen London's FTSE 100 index lose about a third of its value in the last year. However, even the report's compilers admit that while they consider it to have a "near-perfect" track record, there is a chance it is wrong.
"These models tend to work some 80 to 90 per cent of the time," they said. "And in the 10 to 20 per cent that they don't work, the move the other way can be spectacular."Reuse content