Global equities may have a “correction” of between 5 percent and 9 percent after the first quarter as investors sell holdings to lock in profit from recent rallies, according to Jefferies Group Inc.
Europe’s debt crisis is still “not over” because of high borrowing costs in Spain and Portugal, Sean Darby, Jefferies’ chief global equity strategist, said in a Bloomberg Television interview from Hong Kong today. Darby joined New York-based Jefferies in September from Nomura Holdings Inc. His team at Nomura was ranked second for Asian equity strategy in an Institutional Investor poll last year.
The MSCI All-Country World Index has climbed 12 percent in 2012 as data pointed to growth in the U.S. economy, European policy makers approved a second bailout package for Greece and speculation mounted that emerging nations including China will ease monetary policy as inflation pressures ease. The MSCI gauge, which slid 9.4 percent last year, is headed for its biggest quarterly gain since the three months to Sept. 30, 2010.
“People are desperately squeezed into equities to meet performance,” Darby said. “But after that, we will find that unwinding.”
The MSCI index’s valuation rose to 12.9 times estimated profit on March 19, the highest level since May 2, according to data compiled by Bloomberg. It traded at 1.8 times net assets on March 19, the highest price-to-book level since July.
Japanese equities offer “the best value” in Asian equities as the nation may end five years of deflation, Darby said. The Topix index trades for 1.05 times book, the lowest level of 15 major Asia Pacific markets tracked by Bloomberg, even after an 18 percent climb this year.
The nation’s finance ministry reported today an unexpected trade surplus for February and as exports beat economists’ estimates. The Cabinet Office said yesterday that Japan’s economy is picking up “slowly” after the earthquake and tsunami that devastated northeastern regions in March last year.
“There is an enormous amount of skepticism about Japan’s recovery,” Darby said. “The market is very cheap. It’s underowned. And out of the developed markets, it has potential earnings growth of 66 percent over the year. So from the bottom up, it gives investors a reason to invest in Japan equities.”