Market analysts are overstating the potential earnings from equity investments, according to chief investment strategist at GLG Partners Dr Jamil Baz.
Baz, speaking at van Eyk’s annual conference in Sydney yesterday, said equities were not cheap and equity analysts were "living in la-la land" when predicting returns of sometimes 10 and 12 per cent.
He said global investors would only find cheap equities in markets like Russia, the Middle East and Europe – but they were cheap for different reasons which would eventually change.
Predicting the financial crisis would worsen, with recovery taking a minimum of 15 years, Baz said necessary deleveraging would have a devastating impact on the economy and ultimately investors would shy away from risky investments.
With deleveraging having a downward impact on equities earnings, Baz said "profits are heading only one way and that is south."
He said it was "crazy" that corporate bonds are trading at a higher yield than equities, but they were "dirt cheap against equity" and top the list of alternative investments followed by treasuries.
Baz said equities were a risky investment and would only get riskier as the financial crisis worsened.
"You sell the S&P500 index, you light a candle at church and hope for the best," he said.
Baz said investors needed to have proper quantitative models and be broadminded about the asset class and instruments they use. He also said investors needed to trade technically to test support and resistance levels.
