Standard and Poor's global equity strategist, Alec Young has been bearish on stock markets since June this year, but like many other market commentators, he’s turned bullish in recent days.
"A lot of (the) bad news has been priced in as a result of the pretty dramatic volatility that we've seen around the world in the last couple of months," Young told CNBC on Thursday. "You can't be a bear forever. I think we were a little ahead of the curve with our caution in June, it's worked extremely well."
It’s time, he says, for investors to rebalance their portfolios with a tilt towards equities, particularly after the global sell-off in August.
“In light of the declines, we are starting to see value and a lot of the allocations for our clients - whether it's emerging market equities, Asian equities, U.S. equities, Europe,” he said.
Major indices like the S&P 500 , Britain's FTSE 100 and Japan's Nikkei have shed around 10 percent over the past three months.
"We think the risk-reward equation has improved for global equities," Young added, referring to the increasingly attractive price-to-earning ratios (P/E) of major markets. The FTSE 100, for example, now trades at a one-year P/E of 10.4; the S&P 500 at 13 and the Nikkei at 14.5. That's lower than the 12 times earnings the FTSE was trading at in June, and 15 times earnings for both the S&P and Nikkei.
Despite Europe's debt worries and a weak U.S. economy, Young thinks the most likely scenario from here will be weak growth rather than a Lehman-type credit event in Europe or a double dip recession in the U.S. which some market bears are forecasting.
"Assuming we can avoid those two outcomes, I think there's a lot of value in global equities right now," he said, "We think there is more to be gained by buying than selling in the current environment."
He recommends that investors add to defensive positions in U.S. utility and consumer staples stocks, as their dividend yields are much more attractive than what investors can get from parking their money in fixed income assets like Treasurys.
But he recommends avoiding financials, as they would have the most to lose from a worsening of the Euro zone debt crisis.
“We are still avoiding the banks, we are acknowledging there could be more headwinds out of Europe, but we are not letting that stop us from recommending that clients use the volatility to buy new positions at this time,” Young said.