Markets have been hit by a dramatic shock in early August following a series of negative indicators. Should investors buy the dip or hold back for a better day? Private banks find themselves on both sides of the fence.
At the beginning of August, markets momentarily slid into a free fall before a slight rebound. Between July 31 and August 5, the S&P 500 slipped 6 percent while the Nikkei index plunged by over 19 percent.
This level of turbulence has been unseen for a while. Despite the negative US economic data recently reported – widely cited as a major trigger – the near-consensus call amongst private banks is that there is no recession in sight. Nonetheless, they are split on the equity outlook following the latest selloff.
«Omnious Mixture»
According to VP Bank’s chief investment officer Dr. Felix Brill in a note, the combined events of worsening business performance and unemployment (4.1 percent to 4.3 percent) in the US alongside a key interest rate increase in Japan form an «ominous mixture».
«The first few days of August gave markets a good shake,» Brill commented. «There was no sign of summer calm. When the markets are in turmoil, it can be helpful to get some distance. This helps to get your bearings.»
Better Entry Point
Pictet echoed the sentiments, adding that equity corrections rarely end «until a ‘growth scare’ comes with some degree of investor capitulation» which it claims has not yet occurred.
«Our economists do not expect the current growth scare to be followed by a recession, the most likely catalyst for turning a tactical correction in stocks into a longer-term decline,» said Graham Secker, head of equity strategy at Pictet Wealth Management.
«However, while the longer-term outlook for equities appears benign, we expect the current period of elevated uncertainty and volatility to persist for a while longer and see a better entry point later this summer.»
Buy the Dip
Still, some private banks were more optimistic and viewed the recent selloff as a buying opportunity, especially in the tech sector.
According to a note by UBS Global Wealth Management’s chief investment office, «the speed and breadth of the selloff suggest technical factors were part of the story this week» while overall fundamentals remain solid. The bank believes that the correction has uncovered structural opportunities in tech and suggests building balanced exposure in the sector globally with a modest bias to internet and semiconductor names.
Standard Chartered was also in the positive camp, saying that the market dislocation has made US technology-related stocks attractive again. In addition to tech, senior investment strategist Fook Hien Yap said in a note that the bank’s preferred US sectors also include communication services and major banks.
