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Buy Stocks on Dips, Bonds 'Dangerous'

Investors should prepare for volatile stock markets and buy on the dips according to Jim McCaughan, the CEO of Principal Global Investors, which manages $234 billion.

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Sharon Lorimer

"US equities will remain very volatile, but should be bought on setbacks. The sustainable growth is enough to support a 10 to 20 percent return for 2011 as a whole. Emerging equities are attractive for the longer term, on highly visible growth," McCaughan told CNBC on Monday.

However, McCaughan does not like bonds and believes oil prices will drop from recent highs.

"Treasury bond yields are likely to rise, perhaps quite a lot, in all the developed countries over the next few years. This means that high quality bonds will be a dangerous investment," he said.

The oil price will slip if the status quo in the Middle East is maintained, McCaughan added.

"Saudi Arabia continues to seem fairly calm, and Bahrain looks contained. If this holds, then crude oil should weaken. Over the next two or three years many oil producers will need money for rebuilding and social programs. This all argues, most likely, for continued plentiful supply," he said.

But following the failure to reach an agreement at last week’s EU heads of state summit in Brussels, the euro zone crisis could run and run, he added.

"Portugal will now get a "bail out", or, more precisely, a liquidity back stop. Can Spain be far behind?"

"This will continue until the European Union works out how to deal with the solvency problems of several of the weaker euro zone economies. The long-term solution will need either extreme generosity from Germany (unlikely) or debt rescheduling. This series of crises could have another year or two to run," McCaughan told Squawk Box Europe.