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Everyone’s still buzzing about Goldman Sachs’ huge bullish call to buy stocks over bonds.During Thursday’s trading session, Bloomberg’s John Dawson asked Jefferies’ Chief Global Equity Strategist Sean Darby for his thoughts on Goldman’s recommendation.
“I think it’s generally acknowledged that equities are in the better position than bonds,” said Darby. “But we’ve had an enormous rally over the last six months, and positioning now in equities has become quite aggressive. So I suspect you need to put this into a time frame that we’d have to look for some form of a correction of 5% to 9% in the equity markets given the risk appetite that’s already been placed into share.”
Darby sees this stock market sell-off coming soon, but not until after the first quarter.
He also noted that central banks are unlikely to let yields to continue to rise, which would cause bond prices to fall. “It’s not in the policy-makers’ interest to see yields continue to rise, so expect more quantitative easing,” he said. “You’ve got quite a bit of time to move out of fixed-income into equities.”
From a global asset allocation perspective, Darby recommends buying Japanese stocks and selling Korean stocks, hence his sushi-kimchi reference.
“It’s been Korea that has benefitted from a very weak won (currency) versus Japan,” he argued. “I think in the interim you can do a nice spread trade by buying Japan and selling Korea, potentially as the yen weakens further, but also the fact that some of the data points have actually been better in Japan in the last month.”