Equity markets have switched from fear to outright complacency in the space of one year and are ignoring the warning signs, according to SquawkBox Europe's guest host, Phillippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
Indicators such as the VIX, which is currently trading around recent lows, is an example of the complacent attitude which ignores the huge global debts built up over the length of the crisis, Gijsels told CNBC Monday.
"We have always labelled the move from the March (2009) lows as the mother of all bear market rallies and we stick to this view, even though it has already moved quite a bit further than we expected, (we thought about 30 percent to 40 percent but clearly underestimated the animal spirits)," he said.
He goes further and describes this move as a "dash for trash" in which the equity for companies with the weakest credit rating has outperformed the companies with the better credit rating.
On the macroeconomic front Gijsels believes the West continues to face severe deflationary pressures which will offset the overheating in emerging markets such as China and India.
"We expect a soft patch, weakness in the second half of the year as the positive inventory correction has run its course and fiscal measures, i.e. tightening, start to work against the economy. It remains to be seen how strong the economies in Europe and the US are once the stimulus measures wear off," he said.
Go for Darwinistic Survivors
However, Gijsels does see winners against this backdrop in companies which exhibit the qualities of 'Darwinistic Survivors'. Defensives, high quality companies with strong balance sheets and those with strong brands are his favourites.
"In quite a lot of instances dividend yield is more interesting than debt yield, I like for example, telecom. However, we avoid basic resources and financials as they will be vulnerable in a sell-off," he explained.
- Watch the full interview with Phillippe Gijsels above.
In short, Gijsels says we are witnessing markets with big cyclical swings and not a secular bull market. In fact, he says this is a tough environment for a strategist having to sell when the 'good feeling' reigns.
As he puts it bluntly: "For a strategist this makes life also exponentially difficult as you are almost always too early and look like an idiot because you are always going against the 'popular opinion'".
For the Investor: