2010 is likely to be a stockpicker's market

When trying to gauge the outlook for the equity market, we look at corporate profits and the discount rate applied by investors to those profits.

Corporate profits will see reasonable growth in the short to medium term but will be more challenged longer term as indebted governments cut spending and also raise taxes with the latter point negatively affecting private spending. In the short term, we are seeing good revenue growth from the restocking of depleted inventories, which in combination with significant cost-cutting programmes will generate strong profit growth. In the longer term, overall revenue growth in many sectors will be subdued as a result of lower-trend global GDP growth while profit margins will not expand much a...