Be Cautious With Stocks


The tentative rally we have witnessed in equities in the first week of 2009 has all but disappeared. Dismal corporate and economic news continue to stream in unabated, battering investors' confidence as they brace for tough times ahead.

Christoffer Moltke-Leth, head of sales trading, Asia Pacific at Saxo Capital Markets, advises investors to tread with caution in such a market environment.

"We are right now in a very, very deep recession in most advanced economies, and it's a synchronized recession. I believe, for the first time since '82, we have recession in the U.S., Japan, the UK, and Europe," he said on CNBC Asia Pacific's "Protect Your Wealth" segment. "So we have a scenario where basically we have a recession and disinflation. And all historical evidence shows that this is very, very negative for stocks."

Pain to Last Through 2009

Sectors such as financials may present attractive buying opportunities after their selloff in 2008, but Moltke-Leth warns against rushing into the sector.

"We believe there’s probably $1-1.5 trillion more writedowns to come. So it’s simply premature and it (has) not (been) discounted by the markets."

Moltke-Leth also prefers to avoid cyclical sectors and look for defensive plays such as pharmaceuticals and consumer staples, bearing in mind there will be more downsides in the first-half of the year.

"With the fourth-quarter earnings coming up now, I believe there are significant downside risks in equities. We see day-by-day the economic data is the underlying fundamental data is really terrible. And we believe that probably we’ll see negative growth in the neighborhood of 30-40 percent in Japan and U.S. this year. And that has not been fully discounted by the stock markets," he explained.

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Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."