Investors' Clinic: Hold Cash, Steer Clear of Financials
Interesting quotes and suggestions gleaned from Friday's Investors Clinic with guests Michael Browne, portfolio manager at Sofaer Global Research and Elissa Bayer, director of private clients at Insinger de Beaufort.
"There isn't oodles of cash sitting on the sidelines," Browne told CNBC Europe's "Power Lunch Europe." "So if you've got cash, you need to hoard it because there are going to be several more calls upon it should you wish to exercise it."
He suggests investors hoard their cash as interest rates are likely to rise, and in such volatile times, stocks are not as likely to offer good returns.
"You're being paid to own cash. So why wouldn’t you if you couldn't do anything else? If you can't use indexes or you can't short stocks, why on earth would you not hold cash?"
Bayer agreed with him, saying that investors shouldn't rush into the stock market, but rather take their time and be selective.
Both investors also agreed that it’s too early to touch financial stocks.
The banks are in trouble and will stay in trouble “until such time as we see that the provision levels have stopped peaking,” which might not be until 2009 or 2010, Browne said.
“What we are seeing at the moment in terms of rights issues is not enough … we haven’t started, it’s tip of the iceberg time, these guys will be back for more money, they won’t pay any dividend and they probably won’t pay any dividend in 2011,” he added.
Bayer agrees that the flurry of rights issues have added more negative sentiment to the battered sector, but says that the FTSE-listed Standard Chartered has remained relatively strong.
Where Browne and Bayer differ in their outlook is in terms of recession, with Bayer saying she is not in the recession camp, but Browne remaining firmly on the pessimistic side.
“I’ve been sitting in the recession camp since last August and it’s coming true. What’s more, the oil price cheerfully has made it even worse,” Browne said.
“For us to bring back the price at the pump now we have to go from $134 (a barrel) or so, to $100, it’s not going to happen … it will deflate demand,” Browne told CNBC, pointing out that even the price of donkeys in Turkey has gone up ten times this year “because you can’t afford to run a tractor so you buy a donkey to do the work instead.”
Investors looking to sidestep the problems of developed markets by going to emerging markets should be prepared for extreme volatility, Bayer told CNBC.
She suggested that India holds great opportunities for investors, as it has a deeper stock exchange than China, which has a small market and is harder to get into as a foreign investor.
If China is still something an investor wants to invest in, Bayer says to buy stocks of companies that invest there.
Meanwhile investing in airline stocks is only for the brave, according to Browne, and it depends heavily on which airlines are hedged against the oil price, he said.
"People are worried about the cost of flying from an ecological point of view and indeed the practical point of view."
"What we will see this summer … is whether the European consumer feels wealthy enough to buy that holiday," Browne said. “They've still got seats that are empty, they still need to fill them, and if they don't fill them, there is going to be a very significant profit warning coming out in July and August.”