Saxo Bank head of equity strategy believes investors should stick with equities despite concerns QE tapering could lead to a major correction.
The bank’s head of equity strategy, Peter Garnry reckons investors would be ‘quite stupid’ to stay out of the equity game, saying there is still plenty of value to be found.
Garnry said in an interview on Saxo TV: ‘You could have said the same thing [stay clear of equities] in 1996 and you would have lost four years in the bull market for equities.
He added: ‘You have to realise equities are a drift asset – they rise over time and they rise because of nominal price rises. Companies have the flexibility to increase prices and when you have inflation the economy grows so you would expect equities to keep climbing higher and higher unless we have a recession – that’s when you have a bear market.’
While half of the cheapest 20 stocks on the S&P 500 are oil firms Garnry is reluctant to take a significant bet on the sector. ‘You are essentially betting on oil prices to go higher and a major improvement, or global expansion in the economy,’ he said.
‘For my taste that’s a little bit too concentrated a bet so I would diversify a little more. I think value stocks have a claim this year but I wouldn’t go all in oil stocks although they seem very cheap.’
However, Garnry sees a much bigger opportunity in the auto industry. ‘There is still plenty of upside in car sales in the US if you compare car sales to population growth,’ he explained. ‘Europe is turning around and the Chinese car market is still booming so you want to be long the auto stocks.’
‘What is interesting is that if you look at the 20 cheapest value stocks on the S&P you have GM and Ford in that list, which doesn’t make any sense to me. Ford’s guidance on profits is still rising and is the kind of stock that is mispriced and is a better bet than the oil stocks.