IG Mkts says now's good time as ever to buy equities

In an interview with CNBC-TV18, Jason Hughes of IG Markets, spoke about his reading of the European markets and the road ahead.

Below is an edited transcript of Hughes's interview on CNBC-TV18. Also watch the attached video. Q: We have seen some kind a rebound from the lows that the euro, crude as well as equity markets touched last week. What would you cling on to by way of hope?
A: That’s much the sentiment at the moment. Markets are clinging on to a bit of hope, but realistically, in terms of delivering anything meaningful, that still seems some way off. The Eurozone is the main focus for all investors in all markets at the moment as it has been for some time. We are likely to see that the European leaders come through with something that will just do enough just about in time to prevent the sort of absolute worst crisis.
We have seen it before. Every time we’ve moved down to these levels in crisis stage, we got pulled back from the brink and it’s got that sort of feeling of it yet again. Q: Do you expect to see any follow through from the ECB meeting that takes place tomorrow because there are some hopes of an injection of some sort of stimulus etc.?
A: Yes, the ECB have sort of played their cards very close to their chests and are sort of putting the pressure on the politicians to act first and then perhaps they will step in with some sort of easing measures or the likes.
We saw pressure from the IMF for the Bank of England to cut rates. There really is going to pressure on BOE to cut rates and sort of follow-on from what we have seen in Australia today with 25 bps cut. The question is: Is it the time right now or do they hold fire and try and let the politicians sort of hammer out some more meaningful political solutions looking longer-term and then once we have got that in place, do they then decide to act?
All the rhetoric was come out of the ECB up until now has sort of been that they will wait for the politicians. Most people expect them not to cut rates later this week, but maybe there could be some other policies or sort of something in the minutes and a tone that is released in the statement that could indeed give more confidence to the markets. But you wouldn’t necessarily pin all your hopes to that at this stage. Q: At this time does your world view include a QE3 from the US Fed and if that indeed happens, how will you play the various asset markets?
A: That’s a tricky one. The likelihood of it seems to be getting more and more so every time we get that slight downtick in US data. You do have some divergence though. They wouldn’t be looking at housing data that seems to get more positive and on the manufacturing side and certainly in employment numbers that came out at the end of last week that’s added fuel to the flames for QE3 calls.
It’s a tricky one at the moment. You are seeing still the US dollar vying with the yen for the sort of safety play at the moment. That’s certainly is putting pressure on the risk currencies and Asian currencies across the board. So, maybe a QE3 play could be the thing that actually gives us a bit of release in terms of Asian currencies and sort of a bit of respite there, which could help the Asian economies. Q: How would you approach the equity markets for the rest of the year because many of them like the Dow, Asian markets have already slipped into the red. Do you see 2012 as a washout year similar to last year or do you think that towards the later part, there could be a revival in equity markets globally?
A: Going into this year, I myself and quite a few analysts are relatively bullish on equities based on the year that had been in 2011. The great stance of the year in Q1 was maybe, people expected a little too much and we sort of lost sight of some of the issues that were still very much playing in the eurozone.
Going forward, there are a lot of attractive valuations out there and there is some record losing in terms of PE valuations. For real value investors, who are looking for relatively long-term holds, now is the time to start picking stuff up as these valuations are still in play.
That doesn’t mean that we are waiting to see another potential 5-10% or maybe more to the downside of that. I think we are still in a very cautious phase and if you are certainly looking at things from a longer-term perspective, there is no reason for not starting to add to your portfolio now. Q: How are you looking at the events in Europe? There are a group of investors who believe that the European politicians are at their best when there is a crisis and they will hammer out a solution when you get to the brink to ensure that Greece doesn’t leave. Now with the election date approaching on June 17, would you go with that buy into the crisis for the reasons of the entire hold or they will not let the EU breakup?
A: That very much seems to be the likely scenario at the moment. We will probably get some sort of EU supportive government out of Greece in the next elections through some sort of viable coalition, certainly viable in the short-term. Most of the other leaders too want to work towards a sort of proper resolution to this crisis at last.
But there are still a lot of questions to be answered and so far no one seems to step-up and take the bull by the horn or put their hand up to guide the whole area out of this crisis. The local pressures that each of these politicians are facing shouldn’t be underestimated. That’s potentially the biggest issue with some one like chancellor Merkel who should be taking the lead as the biggest country in the eurozone.
But, he is under too much pressure to keep with the course of being thus far because that’s the popular course out of Germany. They don’t feel that they should bail the rest of the region out of what is seen by some Germans as southern European issues. It’s still going to be a tricky play, potentially got a few more twists and turns and 2012 will be a year that we will remember for the right reasons.