Stephane Deo, UBS believes that US is well on its way to recovery and is reasonably bullish on US equities. He has increased his asset allocation weighting into equity.
"We have quite a lot overweight. We had a big pullback after the announcement of the Federal Open Market Committee (FOMC) last month and felt it was an entry point. We have bounced back since then, so the valuations are much less compelling," he said in an interview to CNBC-TV18.
Further, he expects US stocks to continue to rally at slower pace than earlier, but sees potential in the US market until end of the year. However, he does not find emerging market equities attractive and is waiting for more underperformance of Yen before considering EMs.
Below is the verbatim transcript of Stephane Deo's interview on CNBC-TV18
Q: Should markets get nervous on Detroit news or should they ignore that and move forward? How would you attribute today's European market opening, the kind of minor losses that we are seeing there? Is that related to Detroit news?
A: No, I do not think it is related to Detroit news. It is a legacy issue from the previous crisis and I do not think it is a very big event. What is important for the market is the recovery and we have signs that the recovery is well underway in the US. It is slow, but a sustainable recovery. In terms of the little pullbacks you had on euro stocks today, it was 1.35 percent up on Thursday and we have gained almost 5 percent since the beginning of the month, so some form of consolidation would not be a huge surprise for me.
Q: Do you think that factors are in place for the US equities to build on these gains? We have seen some fairly seminal gains coming in, but is there any stopping now?
A: No, we are reasonably positive on equity. We have increased our asset allocation weighting into equity at the beginning of the month. We were already overweight on equities till now. We have quite a lot overweight. We had a big pullback after the announcement of the Federal Open Market Committee (FOMC) last month and felt it was an entry point.
We have bounced back since then, so the valuations are much less compelling. If you believe there is a recovery, even a sluggish one, the best asset class will be the stock market. So, the stock market will continue to rally, at slower pace than what we have seen over the past two weeks, but there is potential until the end of the year.
Q: Do you think people will come back into emerging markets (EM) for value? Do you think people will come back because the US growth will engender some growth? Is EMs not on the investor radar at the moment?
A: The EMs have underperformed for good reason. The profitability of EM companies has been very poor which is very bad from an equity point of view. Commodity prices have also been weak which is not helpful for EMs and the Yen has been weak which again is negative for the EM market.
The part of equity we like less is the EM, so that has been the right call so far. The important question is we had begun the performance so valuations start to get compelling. Are we at a point where the valuations are compelling enough, and from our point of view we are not there yet. We want to see more underperformance of Yen before we get back there.