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It is difficult to forecast, especially the future!

Date : 04/01/2011

Author:  M.R. Raghu & Humoud Al Sabah

How true…It requires tremendous courage to forecast especially when you have the strongest financial crisis hitting the world. Now is the time when investment banks would come out with their forecast for 2011. But, firstly how did they do in 2010. This is the purpose of this write-up and look closely at calls on US Economy, S&P 500, Emerging markets and commodities
 
US Economy
 
Table 1 GDP Data

 

GDP % Growth

BoA / Merrill Lynch

3.2%

Barclays

3.5%

Citigroup

2.2%

Credit Suisse

2.7%

Deutsche Bank

4.9%

Goldman Sachs

2.1%

JP Morgan

3.5%

Morgan Stanley

2.9%

UBS

2.6%

Average

3.1%

Actual

2.69%

Source: Birinyi associates Inc and the institute of international Finance
 
The forecast for US growth ranged from a low of 2.1% by Goldman Sachs to a high of 4.9% by Deutsche Bank with the actual growth coming in at 2.7%. Most of them erred on the high side implying that the expectation was mostly bullish.
 
S&P 500
 
The actual outcome was very close to the consensus call at 1,222 with BOA/Merrill Lynch, Goldman Sachs and UBS getting it nearly right. However, earnings surprised the analysts as the final EPS turned out to be much higher at $84 as against the expected EPS of $76.
 
Table 2- S&P 500 Forecasts

 Investment House

S&P 500

 

       Target

EPS

BoA / Merrill Lynch

         1,275

$73

Barclays

         1,120

$66

Citigroup

         1,150

$73

Credit Suisse

         1,125

$76

Deutsche Bank

         1,325

$81

Goldman Sachs

         1,250

$76

JP Morgan

         1,300

$80

Morgan Stanley

         1,200

$77

UBS

         1,250

$80

Average

         1,222

$76

Actual

         1,224

                    $ 83.68

Source: Birinyi associates Inc. and Markaz research
 
 
Emerging Markets
 
It was a mixed bag for analysts. They got it completely wrong for China, Brazil, Malaysia and Peru while they got it right for India, Indonesia and to an extent Taiwan
 

Country

Brazil

China

India

Taiwan

Indonisia

Malasiya

Peru

Analyst recommendation

Overweight

Overweight

Overweight

Overweight

Overweight

underweight

underweight

Actual

1.09%

-14.46%

15.66%

9.58%

46.32%

19.34%

44.32%

               
Source: Birinyi associates Inc and  Thomson Data stream
 
Commodities
 
Analysts mostly got it wrong on commodities and currency .They did not anticipate the huge rally in copper which closed the year at $9,650 much against the consensus estimate of $6,804. The call on gold was also mostly bearish with only BoA/ML calling at $1,500. However, the year ended with gold trading at $1,400, far higher than the consensus average of $1,213. The oil call was reasonably good with average forecast at $80 matching the year average of $79.
 
Analysts were forecasting a weaker dollar with expectations running as high as 1.59 in some cases. However, dollar held it strong and closed the year at 1.3.
 
Table3-Commodities and FX
 
 

 

Euro Vs USD

Copper

Gold

Crude Oil

 

($/metric ton)

($/oz)

($/barrel)

BoA / Merrill Lynch

1.28

7,125

1,500

85

Barclays

1.45

6,563

1,088

85

Citigroup

1.59

7,500

1,200

84

Credit Suisse

1.54

-

-

70

Deutsche Bank

1.4

5,732

1,150

65

Goldman Sachs

1.35

-

-

95

JP Morgan

1.5

7,100

1,288

78

Morgan Stanley

-

-

-

85

UBS

1.5

-

1,050

75

Average Forecast

$1.45

$6,804

$1,213

$80

Actual

1.31

9,650

1404

92.52

Average price during the year

1.33

7404

1211

79

 
Source: Birinyi associates Inc , Thomson Data stream and Markaz research
 
On the whole, it was reasonably a good performance by analysts given the confused setting that prevailed at the beginning of 2010. Can we expect the same in 2011?
 
 
 

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