Investors should look to Japan and India: DoubleLine Capital’s Gundlach

Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP.
Jin Lee | Bloomberg | Getty Images

While U.S. stocks continue to climb, Jeffrey Gundlach, chief executive of DoubleLine Capital has told investors it's a good time to take a step back from some of their stateside stock holdings and buy assets in India and Japan.

In his first investor webcast of the year, Gundlach discussed his outlook for 2017, saying that after the recent run-up in the U.S. stock markets, investors should look to "peel-off" their exposure to equities. Gundlach, known on Wall Street as the Bond King, said he expected markets to reverse their post-election moves.

He attributed this to high political uncertainties surrounding President-elect Donald Trump's policies and their impact on the U.S. economy. He warned of a sell-off around Inauguration Day on January 20.

Gundlach further highlighted that India and Japan were attractive equity investments but warned of Europe due to political risks in the continent, especially with elections due later this year in France and the Netherlands.

"It would be best to avoid European assets because of upcoming French and Dutch elections," he said.

Bullish on Japan?

Gundlach, also known as a Bond guru, hosts regular webcasts with investors to discuss upcoming investment themes. In his last webcast in December, Gundlach warned that stocks typically rise in the days after the election but may drop once the President-elect is sworn in. He also highlighted that the reasons for a Trump win were general discontent among Americans on low wage growth and income inequality. Gundlach also advised investors to diversify their portfolios and look outside of the U.S. markets for investment

Analysts across the globe have been bullish on Japanese equities and risk assets for 2017. In a research note this week, WisdomTree said they expected Japanese equities to rise as much as 20 percent.

"For the new year, we anticipate strong performance, driven by an upturn in the business cycle in general, the earnings cycle in particular," Jesper Koll, Head of Japan for WisdomTree said in a note.

He further explained that Japanese equities are a highly cyclical asset class, sensitive to the domestic and global business cycle. "For 2017, a positive inflection appears likely on both fronts. As this gets compounded by yen depreciation/USD strength, the net effect should be a steady stream of upward revisions to corporate earnings."

Indians queuing to exchange bank notes after the government introduced demonetization in November, 2016

In the case of India, there are mixed reviews. While some analysts believe the country's latest drive to scrap banknotes in order to tackle the rampant corruption problem wasn't a very well-thought out strategy and can impact the economy in the longer term, there are many others who expect the economy and the business climate to benefit from this move.

"Demonetization and the Goods and Services act are expected to ensure greater participation in the formal economy thereby benefiting the business climate and the financial system in the long run," ZyFin, an India-focused asset management company told CNBC on email.

"Domestically, 2016 was a year that saw India doing well on all grounds. With a pro-growth reform oriented government at the center, India's fiscal policy remained prudent as the government stuck to its budgeted numbers in 2016-17."

In November last year, the Indian Prime Minister Narendra Modi announced the radical step to demonetize the currency notes in order to tackle the rampant problem of the so-called "black money" - billions of dollars' worth of cash in unaccounted wealth and fake currency notes.

The government decided to introduce a new 500 rupee note and also introduce a higher denomination banknote of 2,000 rupees and gave people up to December 30 to exchange their old currency notes.

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