Liquidity is draining out of the market and we are going to see heavy selling before a rebound in the second half of the year according to Peter Toogood, the head of investment at Old Broad Street Research in London.
“There is no liquidity out there. If you look at emerging market debt you can see this. Try and get debt sold, money managers cannot move anything,” said Toogood in an interview with CNBC on Friday.
“This is why we are seeing heavy selling. Equity investors have been moving heavily into defensive stocks and the current selloff will continue until bottoming out in the second half of the year,” said Toogood.
“Earnings momentum is sliding and scaring investors. Firms are hesitant on hiring and investment whilst austerity is going to hit everyone’s pay packet," he said.
The timing of any rebound is dependent on two factors, according to Toogood.
“The two issues investors are focused upon are the end of QE2 (the second round of quantitative easing) and whether Chinese inflation and therefore monetary tightening are coming to an end,” said Toogood, who believes it will be difficult to gauge what happens next until we know the answers to these two questions.
On a more positive note, Toogood is not that bearish on the US economy following a raft of poor data.
“The data is skewed and not that bad," he said.