October 25, 2018 / 4:04 AM / 23 days ago

RPT-ANALYSIS-How bears are taking over world stock markets

 (Repeats story first published on Oct. 24 with no changes)
    * GRAPHIC-Bears are taking over: tmsnrt.rs/2NZdzgj

    By Ritvik Carvalho and Julien Ponthus
    LONDON, Oct 24 (Reuters) - For investors trying to call the
end of the bull run for stocks, the headline performance of the
world's equity markets this year may not be telling the whole
story.
    Wall Street's S&P 500 is up 2.5 percent continuing
its longest bull run in history while the MSCI All-Country World
Index, a widely watched gauge of world stock
market health, has lost just 5 percent despite fears of a global
trade war and a slowdown in China's growth.
    But according to data analysed by Reuters, the proportion of
stocks, regions and sectors that are technically in a bear
market has shot up since the start of January, prompting some
analysts to conclude the bull run may already be over.
    
 
 
    
    At the start of the year, 9.3 percent of the individual
constituents of the S&P 500 index were in a so-called bear
market - defined as stocks that have fallen at least 20 percent
from their 12-month peak.
    By Oct. 22, the percentage had climbed to 34.1 and more than
70 percent of the stocks were in correction territory, defined
as a fall of at least 10 percent.
    The return of the bears is even more pronounced outside the
United States. According to Bank of America Merrill Lynch, 58
percent of the 2,767 stocks in MSCI's global index are now in
bear market territory.
    In Europe, the STOXX 600 has fallen a limited 9
percent this year, but the percentage of bear market
constituents in the index has jumped to 46.2 from 10.2 at the
start of 2018.
    
    For a full interactive graphic illustrating this, click here
tmsnrt.rs/2NZdzgj
    
    The concern among some analysts is that the surge in
securities hitting the 20 percent loss mark could lead to a
tipping point and falls of a similar magnitude in overall
indexes - which typically leads to a long-term downward trend.
    "It's really an indication that a global bear market has
probably already started," said Albert Edwards, global
strategist at Societe Generale.
    He said other technical indicators, such as the breadth of
the market - the divergence between individual performances
within an index - pointed to the same conclusion.
    Such rules of thumb about bear markets are by no means
foolproof but they are closely monitored by money managers and
investors for whom calling market turns correctly is paramount.
    Still, Edwards has a reputation for being a so-called
permabear due to his often pessimistic views and other analysts
caution that the increase in bear market constituents could be
read in two ways.
    Either the creeping bear forces a further investor
capitulation and long-term funk, or it slowly releases air from
what many assumed were bubble-like valuations and eases the
pressure to cut and run.
    Analysts who side with the second view say the bull market
won't run out of steam until the U.S. economy slips into
recession.
    Many influential investment houses such as Goldman Sachs
continue to take the view that tax cuts under the administration
of U.S. President Donald Trump and the U.S. economy's momentum
will propel markets further.
    "Economic expansion and the long-bull market in equities
should continue in 2019," the investment bank wrote last week,
pointing to rising U.S. corporate sales and profits.
    
 
 
 
 
 
    
    ROTTING FROM THE TAIL 
    For the pessimists, the flurry of mini bear markets within
catch-all stock market indexes - even among those still showing
positive returns this year - is becoming hard to ignore.
    Other indexes that have seen a marked rise in bear market
constituents include global emerging markets, Chinese
shares and European autos and banks. 
    In the United States, the Nasdaq 100 - which is up 11
percent this year and whose tech shares have spearheaded the
bull market for the past two years - has seen the percentage of
its bear market constituents surge to 43.7 from 7.8 in January. 
    Some analysts say this suggests that while popular stocks
can still thrive, a growing number of stocks are quietly
collapsing in the background.
    In Germany, the change of fortune has been particularly
brutal for the blue-chip DAX. Only two of its 30 stocks
were in bear market territory in January but now there are 18.
    In Japan's Nikkei, which has only lost 3 percent in 2018,
bear market stocks made up 48 percent of the index on Oct. 22,
up from just 4.9 percent at the start of the year.
    "They say fish rot from the head but in the market's case,
it's rotting from the tail onwards," said Societe Generale's
Edwards.

    
 (Reporting by Julien Ponthus and Ritvik Carvalho; editing by
David Clarke)
  
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