Increase Equity Weighting - Scotia

When it comes to allocating your investment assets, Vincent Delisle says it's time to go on the offensive.

The Scotia Capital strategist believes the risk-reward profile for equities remains attractive despite the rally from March and raised his model portfolio stock weighting from 65% to 68%, while reducing exposure to cash from 7% to 4%.

Mr. Delisle said in a note to clients:

We believe improving fundamentals (rising EPS estimates) and technicals (S&P 500 golden cross was achieved late June) will support further gains in coming months.

Based on a 16x forward multiple on his 2010E earnings, he has a 12-18 month target for the S&P/TSX index at 12,000. His target for the S&P500 is 1,150.

Mr. Delisle told clients to remain overweight North & South America and emerging markets, and underweight Europe and Japan.

On expectations that commodity sensitive currencies will appreciate relative to the U.S. dollar, he lowered exposure to the S&P 500 by 2% and increased his weighting in Canada by 1%.

He said:

Our geographical focus is also geared towards markets which combine relatively stronger domestic fundamentals and sensitivity to commodities. In our opinion, Canada, Brazil, and Mexico score higher than the United States in that regards. Moreover, the S&P 500 benchmark is roughly 33% weighted towards low beta/defensive sectors.

While high beta stocks have taken a breather of late, the strategist thinks they will lead indices higher this year and next. With yield curves now in a steepening phase, he likes early cyclicals like financials and consumer discretionaries at the moment. Once yields start to flatten, he prefers mid/late-cycle sectors like industrials, technology and commodities.

Comments

[Larry House:]

This is insanity! This market is strictly for traders right now. The people who boarded the Titanic thought it was safe too.

Jul 02 02:47 PM

[trailingstop:]

Yes, buy now at the top, what a great recommendation! STUPID!!!

Jul 02 04:31 PM

[jeandit75:]

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Jul 02 04:36 PM

[tobi:]

It is true that an upbeat earnings SENTIMENT could push the market a bit higher, maybe even a lot. But besides earnings, there is still a lot of macro data such as todays unemployment number that seem to set the tone and rightly so. Now the question is, how realistic is that and how much of that has not already been priced in ? The market now wants to see clear signs of growth and I doubt that is what companies can deliver. However the rally monkey has the buy buttom very easy these days and another green shoot frenzy could break out.

Jul 02 07:17 PM

[tobi:]

And I agree, it's a traders market.

Jul 02 07:18 PM

[Mike McCurdy:]

Vincent could well be wrong here but I don't know. Why not just wait for the earnings reports over the next few weeks and see what they look like? Jobs are still broken. At the very least, rather than buy-and-hold, a more conservative approach is to be in cash and buy market weakness and then flip it into any strength.

Jul 03 12:08 AM