Investors may focus on the U.S. Federal Reserve, but global liquidity heavily dependent on Japan’s monetary stance.
However, barring an rebound in either Japanese inflation or the Yen, Mr. Delisle thinks weakness for equities will be temporary. He also expects U.S. GDP to bounce back in the second quarter.
In the next 12 to 18 months, Mr. Delisle thinks the bond market is the least attractive place to be and has lowered his bond weighting by 3% to 28% of portfolios. His recommended cash weighting moves up 3% to 10%, while equities remain unchanged at 62% as upward pressure on interest rates continues.
“Attractive equity valuations, extended EPS growth in ‘08 and tremendous liquidity (M&A, Pension Fund immunization) will quickly support the ongoing equity sell-off,” Mr. Delisle said in a note to clients, adding that he expects his firm’s next move will be to put more cash into equities.
Scotia has a one-year target of 1,550 for the S&P 500.