Investors should sell any equities bought over the past year, hold the proceeds as cash and take a holiday from the market for six months, according to Steen Jakobsen, Saxo Bank A/S’s chief economist.
A likely increase in U.S. interest rates will intensify market volatility and threatens to wipe out any gains investors may have made in the past two years, Jakobsen said in a March 29 interview in Dubai. Slower expansion in the economies of the U.S. and China will also hurt investors holding stocks, said Jakobsen, who last year predicted a drop in oil prices to below $80 a barrel.
“If nothing else, reduce your stock portfolio to where it was on the first of January last year, put the money into cash and take a nice long summer holiday,” said Jakobsen, 50, also chief investment officer at the Danish lender. “You won’t make any money, but you lose all the downside risk.”
China’s weaker property market is weighing on economic growth and cutting demand for commodities from copper to steel. The latest consumer spending data in the U.S. indicate the biggest part of the economy may not sustain momentum after the strongest quarterly growth in purchases since 2006.
The value of global equities jumped 5 percent this year through Monday, the most since the end of 2013, as central banks from Europe to Asia expand stimulus packages and ease policy to bolster their economies. The S&P 500 Index is poised for a ninth straight quarterly increase, the longest stretch since 1998.
Low interest rates and stimulus spending by central banks have now gone on for so long that their ability to continue bolstering growth has waned, said Jakobsen. The European Central Bank is seeking to revive the euro-area economy by boosting inflation back to its goal of just under 2 percent, buying 1.1 trillion euros ($1.2 trillion) of assets including government bonds through September 2016.
“The problem with the European quantitative easing program is that it comes so late, policymakers realize that it will not be what takes Europe out of low inflation,” Jakobsen said.
Low rates and stimulus spending have also has left most equities over-valued, he said. There remain some investment opportunities in the energy and mining industries, where the withdrawal of funds was overdone in the wake of a decline in oil prices, he said.
Saxo Bank in December forecast a crash in U.K. housing prices and the departure of Mario Draghi as ECB president, among its 10 “outrageous” predictions for 2015. Jakobsen’s previous tips that turned out to be right include gold falling to $1,200 an ounce in 2013, and the Icelandic banking crisis of 2007.