The professionals who spend their time pondering foreign stock markets say that, on balance, they are optimistic about 1992.
But their optimism, bolstered by an end-of-the-year rally, is tempered by the underlying economic outlook, especially uncertainty about a global recovery.
This makes 1992 harder to call than 1991, despite the threat of the war at the beginning of last year.
Some analysts predict returns on equities this year of 20 percent to 25 percent worldwide, better than the returns of 1991, which were up 16.53 percent in dollar terms after sharp declines in 1990.
NB But the 1991 performance was achieved only with a surge in the
final week and a record-setting rally in the United States. As a whole, the Financial Times index for all world markets ended at its high for the year because of the U.S. rally.
Many leading markets still finished below their 1991 highs. Without the rally, the year would have been little more than half as good.
The fourth quarter began with a sharp decline. But the year-end rally turned that into a 3.72 percent rise in the index, in dollar terms. Much of this gain was due to a slumping dollar. In local currencies, the index was virtually unchanged (up 0.02 percent).
In 1990, the index was up by more than 19 percent.
The reasons for optimism in 1992 include expectations of falling interest rates, a continuing decline in inflation and relatively attractive values in many stock markets, in part because of projections of higher earnings. But these forecasts all include "ifs."
The economic recovery in the United States, which is important for stock markets worldwide, is in doubt, despite the sharp interest rate cut by the Federal Reserve on Dec. 20. So is the recovery in Britain.
Economies elsewhere are slowing. While short-term interest rates have fallen sharply in the United States, Britain and Japan, which cut its discount rate on Monday, the Bundesbank raised German interest rates another half a percentage point the day before the Fed acted, confirming that rates in Europe will not soon fall.
France, Spain and Italy have all followed with interest rate increases, and Britain may have to follow, too, despite an approaching election. Earnings estimates are falling rapidly.
And the remaking of what was the Soviet Union offers plenty of opportunities for developments that may disturb world markets.
This uncertainty behind the optimistic forecasts is leading some brokerage firms and money managers to hedge or even trim their bets on equities by putting more money into bonds, especially in Europe, where there is the best chance for a bond rally next year.
For Americans there is another possible negative: the dollar. It fell sharply at the end of 1991 and could rally this year if the positive forecasts are right and the U.S. economy rebounds. But a rally would cut into capital gains from abroad when they are translated back into dollars.
Guy Rigden of UBS Phillips & Drew in London has a well-hedged, optimistic view for 1992. When told that his optimism sounded a little pessimistic, he turned to Charles Dickens' "Tale of Two Cities" to underline his sentiment. "It was the spring of hope, it was the winter of despair," he read.
He then expressed his view in his own words. "You have to have a central case of assumptions, but that central case is more uncertain than it is normally," he said.
Because of the uncertainty, Mr. Rigden has just revised his recommendations for client portfolios, shifting money from equities to bonds.