GO
Loading...

Equities have 20% upside left this year: Strategist

Global policymakers have created an optimal environment for equities to rise again this year, according to Ian Harnett, a European analyst at Absolute Strategy Research, who believes stocks will rally another 20 percent in 2014.

A rise in "pricing power" is the reason, Harnett said, with politicians and central bank officials - especially in the U.S. – hell-bent on getting unemployment down and real wage growth up. This, he said, would lead to companies being able to raise prices and grow toplines.

"We take this as a big opportunity to get back into the market," he told CNBC on Thursday.

"We still think there is 20 percent upside through the year for equities, and that they are strongly favored over bonds. Policy is geared towards equity investors rather than bond investors at the current time."

Read MoreWarren Buffett: Stocks aren't 'too frothy' now

Stocks have had an indifferent year so far in 2014, after a stellar rally last year. The U.S. S&P 500 has risen a meager 1.8 percent so far this year, having risen over 10 percent by the same time in 2013. Geopolitical tensions in Ukraine has weighed, as well as an emerging market sell-off and plunge in technology shares.

Traders work the floor of the New York Stock Exchange.
Getty Images
Traders work the floor of the New York Stock Exchange.

However, Harnett sees equity investors moving back to the fundamentals, and concentrating on the underlying values of companies. Added to a pickup in economic growth and inflation remaining "relatively modest", he believes it is the ideal environment for equity investors.

In its latest monthly research note, Goldman Sachs predicted a pickup in global growth and saw an upside in stocks, most notably in Germany's DAX index. Meanwhile, Ed Keon, portfolio manager at Prudential's Quantitative Management Associates, told CNBC on Monday that the stock market low of April 11 had a "pretty good chance" of being a low point, and said the S&P 500 could rise 10 percent this year.

Read MoreLast year's deadbeats do best as stocks stall

Blu Putnam, chief economist at CME Group, was more pessimistic. He questioned whether U.S. companies would be able to grow revenues, placing any further equity rally in doubt.

"I know what we want, but the question is what are we actually going to get?," he told CNBC on Thursday. He added that equity investors shouldn't rely on policymakers, particularly in the U.S., and said he expected valuations to be tested once again.

Latest Special Reports

  • With the world becoming more interconnected, it’s getting harder to anticipate and manage global risks. We take a look at some of the biggest risks and ways to mitigate them.

  • From family-run companies to public companies with family ownership, we tackle challenges and rewards facing family businesses.

  • Inside the market's biggest sectors with a look at the trends, companies and trades netting profits for investors.

Investing