June 25 (Bloomberg) -- Stock investors can look forward to another few years of gains as central banks engineer a return to inflation, providing a tailwind for global markets, according to CLSA Ltd. strategist Russell Napier.
An acceleration in inflation from zero to 4 percent is historically associated with gains in stocks as the benefits of rising prices accrue to profits instead of labor earnings or debt holders, said Napier, the author of “Anatomy of the Bear,” a study of bear markets.
The best bets for investors remain Asian equity markets, which are likely to be driven by domestic demand-related growth and will be less affected by problems in Western countries, said Napier, Institutional Investor’s top-ranked Asia strategist from 1997-1999.
The 10-year price-to-earnings ratio of the S&P 500, another long-run indicator of stock values, was 15 percent above its average, according to Smithers and data compiled by Yale University’s Robert Shiller.
Napier counters that central banks have the ability to manufacture inflation, citing a Milton Friedman comment that “inflation is always and everywhere a monetary phenomenon.”
The U.S. M2 money supply, the broadest indicator currently tallied by the government, has climbed 1.9 percent in 2009 from the year after logging a 9.6 percent increase in 2008.
“Because they’re printing so much money and because they’ve seized control of the commercial banking system I think we’re likely to get strong money growth,” Napier said. “It wouldn’t surprise me at all if the main inflation we get is in asset prices.”
http://www.bloomberg.com/apps/news?pid=20601213&sid=axHWS_QU0OCQ
As long as the US markets move side way or with a bit of rise, I do think Asian stocks are going to rally.
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