Don’t trust the stock market, this rally may not last. According to Banco Fator chief analyst Lika Takahashi, the recent stock market gains were mostly engineered by the ECB’s liquidity injections. The analyst warns that this bullish trend might reverse soon. Or… it may have already started.

“I stand by my projection for the Bovespa index at 60,000 points for 2012.”

Here is why the analyst said she is worried…

1. Slowdown in China

“The risks in China are exacerbated by the lack of transparency of its economic data,” she says. The fall in inflation may be positive news, but other data such as industrial production and retail sales in China did worse than expected.

“The market have priced in a soft landing in China, not a hard landing, hence we’re .”

2. Europe still at risk

“The opinion of most analysts is critical about the policy of the ECB, which postpones the political processes and economic adjustments necessary to resolve the crisis,” she says.

“Until recently, investors were confident about the progress of Spain. This feeling begins to evaporate as analysts are questioning whether the Spanish economy is not worse off than it sounds.”

3. U.S. risks

In the United States, the employment figures have improved but not as they should for a full recovery. Industrial activity has risen, but with the help of exports. “Meanwhile, the euro zone may be technically in recession and the BRIC countries in synchronized downturn. The US will hardly continue to be an oasis in a recessionary world.”

“Rising commodity prices, especially oil, slowing growth in emerging markets and the impact of a strong dollar should have pressured margins for the S&P companies,” she says.

4. Brazil also has its own risks

Lika points out that Brazil has embarked on a new offensive to halt the appreciation of the real, but the measures may yield contrary outcomes to what the country wants.

“The problem for the Brazilian industry is that we consume more imports. So we have growth without the industrial dynamics.The competitiveness challenge is that we are better off abandoning uncompetitive industries and train workers for the service sector, which requires more skilled labor.”

Share →