While the focus remained on indebtedness and deflation remained a threat, Aberdeen’s head of global strategy and asset allocation Mike Turner believed the market was acutely aware of this and had the scope to stabilise at lower levels, even if there was likely to be sustained volatility while it did so.
Turner said this stabilization could happen within the next two weeks but warned going into 2012, the fate of the global economy depended more than ever on achieving the correct policy response.
“The failure of the political and monetary establishments to agree what needs to be done has had a massive impact on market sentiment, and risk appetite has fallen into the panic zone.” he said. “But because there is little evidence to justify the swiftness of the [current] sell-off, and because there is still a reasonable chance of a modest acceleration in growth in the second half of the year, we would not be surprised to see the markets stabilise in the next fortnight.”
Turner believed the speed of the market decline had been exacerbated by the unwinding of volatility exposure within the derivatives market.
He said the current climate was providing investors with a buying opportunity in the short term, with some valuations getting near to extremes.
“Stocks are at historically low P/E ratios, and dividend yields should provide some support,” Turner said.
