It may seem like an absurd investment strategy but this is the time to invest in European equities. At the recent Bull & Bear Symposium, financial experts from the U.S. made a strong case for investing in Europe and Emerging Markets.
“In this market we’d be buying European equities,” said Jason E. Todd, Morgan Stanley & Co. Incorporated. “It may be counterintuitive to what most people actually think but we are kind of staring the storm in the eye at the moment. We are buying Europe over the U.S., the U.K. and over Asia-ex-Japan.”
Another sound investment tip from Todd: invest in Emerging Markets.
“We are very bullish on emerging markets over developed markets,” he said. “In fact, I believe over the next three to five to years, it’s the only trade you want on, besides the gold trade.”
He said considering their contribution to the global economy over the last two years, emerging markets will continue to be a primary driver of the global economic growth.
There was a clear message for those sceptical about the U.S. economic recovery. The recovery is real and the threat of a double-dip recession isn’t.
“We don’t believe we are going to see a double-dip,” said Todd. He has his reasons to believe that. First of those, he says, is the fact that “real disposable income in the U.S. is already starting to pick up.” That income stream is expected to drive domestic growth.
Earning expectations is another indication that things are beginning to look up.
“When you look at earning expectations, we are not particularly bullish but while a lot of people are talking about downside risk in the near term, we believe it’s reasonable in terms of what is already priced in.”
He maintains it’s a slow opportunity, high volatility environment, but it’s still a range trading environment.
“People get confused here when we talk about the second phase of recovery,” he said, referring to the assumption that they are getting bearish on equities. “That’s not really the case – you can actually have equity markets rising through this phase, and, in fact, they generally tend to do so.”
The events over the next two years, he said, would play out much the same way as they did during the late 60s and through 70s. It was the time when “equities were very closely correlated with growth indicators,” he said.