The strategist who warned investors to sell equities in June 2007, just before the credit crisis, is saying the market is sending its strongest buy signal for six years.
The last time Morgan Stanley flagged a "full house buy" for European equities was in September 2002, just before a five-year bull market began.
Teun Draaisma, European equity strategist at Morgan Stanley, said yesterday that full house buy signals had a near-perfect track record and had been very good at indicating when markets were nearing a turning point.
He said that "each of the four indicators [valuation, capitulation, risk, fundamentals] tell us to buy.
"The latest elements that pushed us there have been a capitulation among retail investors, purchasing managers and sell-side analysts, as measured by record mutual fund outflows, ISM new orders below 40 and analysts' revisions collapsing . . . When these three groups know about the bad news, equity prices are probably already reflecting it."
Mr Draaisma warned that full house signals had sometimes been early but had only been wrong once, in November 2001. This was later followed by all indicators giving a sell signal in April 2002.
"Despite the bad fundamental outlook, prudent investors should not be short equities," he said.
The bank believes the market is in the worst earnings recession for 40 years but that the bad news is already priced in.
"We see 15 per cent upside to our 12 month target for MSCI Europe."
Mr Draaisma believes the "severe part of the bear market is over" even though he points to many short-term risks.
The FTSE Eurofirst 300 yesterday completed its first five-day winning streak since October 2007 as expectations grew the the ECB would cut rates.
"The more prudent investor may wish to stay in cash and not be overweight equities, but our advice is not to be short or underweight any more," Mr Draaisma said.
"Our advice is also for long-term investors to keep on averaging in at these and lower levels."
No comments:
Post a Comment