Fiscal cliff uncertainty is good buying opportunity: ScoGen

Patrick Legland of Société Generale, says that the current uncertainties that we have on the fiscal cliff must be considered as buying opportunities on the market. Overall, global equity markets remain quite cheap. Secondly, global economic growth possibly the US and emerging markets remains relatively strong

Below is the edited transcript of his interview to CNBC-TV18. Q: What is your view of how the US will resolve the cliff? Purely, from an investor’s angle what should we be prepared for - a risk off in the equity markets because spending will contract in the US or is everything in the price, a few days of uncertainty and then risk on resumes?
A: The current uncertainties that we have on the fiscal cliff must be considered as buying opportunities on the market. Overall, global equity markets remain quite cheap. Secondly, global economic growth possibly the US and emerging markets remains relatively strong. Certainly, we will see some weaknesses in the next few days based on fiscal cliff, but on the other side it is likely that many investors would see this as a very good buying opportunity to reposition or reinforce on equity markets globally. Q: What about the uncertainty related to the cliff? The cliff is just one issue. There is also the debt limit issue that seems to be lingering at least till February this year. Do you think that uncertainty will lead to volatility or is the market pricing in some of this and you do not expect it to go into a downtrend?
A: It is clear that we will have some volatility particularly on the US market. The US is third largest country within the Organisation for Economic Co-operation and Development (OECD) with lowest tax rate. Even if little tax rate is raise in the US at the end of the day to remain relatively median for US citizens and very clearly volatility in the short-term, but buying opportunity for equity markets. Q: What asset classes would you back in the first quarter of 2013? Would you back commodities because you are happy with the kind of recovery you see? Would you pull out a lot of money from the bond market since they gave superb returns in 2012?
A: We continue to be positive on emerging markets and commodities. We have been very pleased with figures coming from China in the last few days which confirm that the Chinese recovery is very strong on one side, on the other side emerging markets are as well showing a very good recovery and this will be very good for commodities.
We are positive as well on European equity assets, which have been badly depressed in the last few years and we are cautious on US equity market. On one side we believe that US economy will be strong in the second half of the year, maybe 3-3.5 percent which is positive, but on the other side it is already priced in by US equity. Corporate bonds are relatively expensive while equity tops our list in terms of investment. Q: When you speak to your clients do you feel that many of them are still on cash waiting on the sidelines for this fiscal cliff issue to go out and then redeploy money? Will there be a fund flow again in the second half of January once the cliff issue is out of the way?
A: Yes, global investors have invested around 30-35 percent of their total portfolio in equities, which is very low. If global investors were invested at 50-55 percent in equities, then there is room to come back to the market. We should not be surprised to see rally in the equity market continuing in the next few months.