Sell-Off, So What? Analysts Are Sticking to Their Guns
The global market sell-off since the start of the year may have sent investors scurrying for cover, but it's getting a yawn from analysts who are sticking with their 2014 calls.
"We see no reason to write off our positive view on the outlook for a recovery in developed markets, or reverse course on our recent shift to a more positive view on Asian emerging markets," Gary Dugan, chief investment officer for Asia and the Middle East at private bank Coutts, said in a note.
Although markets appear to have settled for a couple days, global stocks have been turbulent, with U.S. and Japanese equities dropping to multi-month lows earlier in the week as soft U.S. economic data compounded worries about emerging markets.
For their part, emerging markets have seen a brutal sell-off this year after sharp falls in the value of the Argentine peso, Turkish lira, South African rand and Brazilian real triggered panic selling across the asset class. Analysts largely blamed the turbulence on the Federal Reserve's tapering measures, the first hint of which last year sent risk assets worldwide sprawling.
"Although we didn't anticipate the big moves witnessed in equities and bonds so far, we think it would be a mistake at this juncture to change our stance," Dugan said. "We see periods of weakness as an opportunity to add exposure to equity markets, not a reason to sell into the panic."
Coutts isn't the only one keeping its cool amid the volatility.
In spite of the weak start to the year -- the worst since 1980 -- %VIRTUAL-article-sponsoredlinks%"we are sticking to our optimistic view on equities for 2014 as a whole," Credit Suisse (CS) said in a report titled, "Equities: hold your nerve!" It kept its overweight call on equities.
"A continuing global recovery still appears to be the most likely scenario," Credit Suisse said. "The acceleration in U.S. and European domestic demand should help stabilize [global emerging market] growth through stronger export performance" especially given the recent fall in exchange rates, with the aggregate GEM real effective exchange rate down 8 percent from its 2010 peak, the bank said.
It believes equity valuations remain attractive in the U.S., adding "in Europe, GEM and Japan, an abnormally high proportion of companies are still trading below replacement value."
Credit Suisse said the market has gotten overly concerned about an economic slowdown in developed markets after data from the U.S., including the ISM new orders and December non-farm payrolls, came in weaker than expected. The bank believes poor weather in the U.S. accounted for much of the slowdown.
Even if the data aren't skewed by the weather, some don't believe it matters as much for investors as for traders.
"All of the stuff we're talking about -- the non-farm payrolls and the ISM -- all of this stuff is very, very important if you've got enormous amounts of leveraged money in markets," Mark Tinker, global portfolio manager at AXA Framlington Asia, told CNBC.
"But it's not as important for the real economy; it's not as important for an equity investor as it appears to be because of the noise coming from the FX markets and the fixed income markets where there's lots of short-term leverage," he said.
The latest sell-off is largely just noise, Tinker said.
"Most of the long-only money that I'm aware of is sitting on the sidelines and this is traders playing against traders," he said. "They're trying to see who they can shake out."
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