A possible swine flu pandemic is arriving at a time when the global economy is on its knees and risk appetite still fragile. But in 2003, the worst news on Sars didn’t prevent the global market from rallying, says Kevin Gardiner, head of global equity strategy at HSBC.

Despite the shadow cast by the possible pandemic he sees signs that the outlook for markets is improving.

“The economic data continue to look more balanced, and we may not be far away from the first upgrades to consensus GDP forecasts for many months.

“The indicators of financial stress that we’ve been focusing on do seem to show, again, some further stabilisation in the banking crisis itself – at least, until this weekend.

“Credit and bank CDS spreads are narrower; debt issuance is robust; Libors continue to drift lower; the surge in mortgage financing continues; and implied volatility seems to be waning.

“US moneymarket mutual funds continue to show no net inflows in 2009 to date, suggesting that risk appetite, though low, may be stabilising.

“The last decade has already been one of the grimmest for equity returns, and with many institutional investors now effectively out of the market we would not be surprised to see a prolonged period of outperformance.

“On a 3-6 month view, we would retain a pro-cyclical bias in our portfolio, and our end-year target of 900 for the S&P 500 index remains intact.”

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