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SCMP Reporter

Last year was a tough one for bullish strategists - that is 95 per cent of them.

Even the most blindly optimistic must have done their share of navel-gazing during the course of the year as markets tumbled despite the United States Federal Reserve hacking away at interest rates.

With global stocks rallying since September 21, it is now the bears who are left feeling grizzly.

Strategists tend to have an underlying bias on top of which they overlay some short-term tactical thinking.

For the bears, the strength of the rally means reluctantly switching their model portfolios towards more risky stocks. Beyond that they are having to evaluate whether the upbeat market action is trampling all over their cherished longer-term view of how the financial world will unfold.

It is an important point, as being bearish is tough at the worst of times. While you may win some kudos from fund managers for helping them outperform in a down market, there is nothing they hate more than being left behind in a barnstorming rally.

Regional strategist Christopher Wood, who is in the process of switching from ABN Amro to CLSA Emerging Markets, is among the bears re-examining the vision through their mud-coloured glasses.

Late last year, he wrote in his Greed & Fear  newsletter: 'With the investment new year approaching, it is time again to consider the case for putting the bear back in the box.

'For there are some real points still going for the bulls, for whom the past quarter has been wonderful.'

Mr Wood has highlighted problems in the US, such as the low savings rate, high corporate and personal debt levels, current account deficit and low capacity utilisation. He has often pondered whether these and the lofty valuations in US stocks will combine to cause more pain in Asia and around the globe.

But once again these flaws are being washed over by the unprecedented levels of liquidity being forced into the world's financial system and the fist-pumping sentiment from the unexpectedly easy victory in Afghanistan.

'The uncomfortable reality for those, like Greed & Fear, naturally inclined to focus on the structural negatives is that the level of monetary exuberance in Americans is such that it can easily continue to send global stocks higher through the first half of [this year], so long as the Wall Street correlation continues.'

Mr Wood's apologetic tone continued in his latest newsletter. But this bear is not going back into his cave in a hurry.

'If the short-term view on stocks may still be sanguine, the 'Big Picture' view remains driven by the long-standing conviction that American excesses have not been sufficiently corrected.'

Albert Edwards, the global strategist at Dresdner Kleinwort Wasserstein, has also had to go into the confessional after maintaining a position which is 20 per cent cash and very underweight on US stocks.

'We know our biases,' Mr Edwards said. 'There is no doubt that moi, in particular, tends to see the cup half-empty, rather than half-full. But let's face it, doesn't that help make up for the 95 per cent of strategists who will always see the cup as totally full at all times.'

The London-based guru has long held the view that we are heading for an 'Ice Age' when stocks will no longer be driven by a structural decline in interest rates, telling investors to expect slim pickings from stocks in the coming years.

Despite being buffeted by what the markets are saying about a recovery, Mr Edwards said: 'The US economy faces a massive headwind.'

A longer-term view, whether bullish or bearish, can be a helpful road map for investors, but it can also tie them up in mental chains when short-term opportunities come around.

Raymond Foo, regional strategist at BNP Paribas Peregrine, likes to keep light on his feet with a six to 12-month view. His views deserve an airing as he has been voted the best strategist two years in a row in Asiamoney's fund manager poll.

Mr Foo put out a note at the end of September recommending investors go to zero cash and says they should 'just enjoy the ride. With the bear-case scenario you are worrying two cycles ahead. If you are thinking so long-term, you will be out of a job and the fund manager will be out of a job.'

He sees where we are today as a rerun of 1998 when most managers condemned a year-end rally as a 'dead cat bounce' only to eat their words in 1999 when the Hang Seng Index roared up from 10,048 points at the end of the year to just shy of 16,000 points 12 months later.



Hidebound bears left feeling rather grizzly