Keep Cautious, Stealth Correction On its Way: Manager
Risky assets have risen too much, too soon and too fast, but investors won't get an obvious sign that a correction is starting and will have to gauge fundamentals, Yogi Dewan, founder of Hassium Asset Management, said Thursday.
"Towards year-end, people look at valuations and they think it's too high. We've rallied some 60 percent from the lows and (a correction) is about to happen," Dewan said.
"If you look at valuations in the equity markets, they are way too high," he told CNBC. "On a price–to-trailing-earnings basis, we're up in the 20- to 25 (percent) region. You really need to be down around the 15 percent level."
"I don't think you should be looking for a catalyst (to kick-start a reality-driven correction). I think you should be focusing on fundamental analysis and investing in a really sensitive, cautious manner," he said.
Hassium said they anticipate that investors will unwind risk and take profits until the end of the year.
"We think, short-term, the markets will probably pull back a good 5 to 10 percent, especially in the run-up to year-end. However, longer-term the recovery in 2010, we don't think it's sustainable. We think it's going to be a really slow grind and we would expect the markets to stay range bound, maybe trade lower," Dewan said.
We are "a long way off" markets getting back to fair value, Dewan told CNBC.
"The markets at the moment have rallied on the basis of liquidity. It started off as a bear-market rally from oversold conditions and then liquidity took over," he said.
The rally in global stock markets is unsustainable at the present levels, according to Dewan.
"On an economic basis and a fundamental basis, employment seems to be a key issue. Obviously the U.S. (unemployment) figure at 10 percent is not great. And it seems to be getting worse. Unemployment across all the major economies is declining. Confidence at the consumer level is looking bleak. The housing market is pretty mixed," he said.
Investors can get good returns once they have decided what their equity exposure is relative to their bond exposure, and what their dollar exposure is relative to your base currency exposure, he advised.