This Is A 'Sell On Rise' Global Market, Says Avendus' Andrew Holland

An electronic board displays stock information at the Australian Securities Exchange. (Photgrapher: Brendon Thorne/Bloomberg)

The global equity market is a "sell on rise" market right now, rather than a "buy on dips" one, as more pain and volatility are expected over the next few months, said Andrew Holland of Avendus Alternate Strategies.

With the U.S. Federal Reserve expected to raise rates by 50 basis points this week and other European countries possibly following suit, liquidity is bound to be squeezed and growth opportunities will be harder to come by in equity markets, the chief executive officer at Avendus Alternate Strategies told BloombergQuint's Niraj Shah.

According to Holland, the U.S. Fed is "behind the curve as it was the first time around", saying it's "transitory" in terms of inflation. He expects more volatility in the market as a possible unintended consequence of liquidity tightening.

If you look at say the housing stocks in the U.S., share prices have fallen significantly over the past three months. So, it's telling you that there's going to be some pain. You can't have all of this liquidity for many, many years, sloshing around across all asset classes, without some pain being felt somewhere. And that's what the market might have to grapple with.

Andrew Holland, CEO, Avendus Alternate Strategies

Even the currency markets are pointing towards more pain, said Holland. "If you ignore the Japanese yen — because they're stimulating at a time when everyone else is tightening — the euro and the pound is telling you that Europe's going into recession."

By the end of the calendar year, Holland expects the talk to shift to deflation in the U.S. Once inflation is dealt with, "deflation is going to be the big driver of markets going towards the second half of the year", he said.

Foreign portfolio investors will come back looking for "growth in the world" and at that moment, India will stand out, said Holland.

"We will have our own capex cycle, margins will start to improve again as commodity prices start falling, and discretionary spending will again start to pick up. We're still going through the first phase of real reopening of the economy. That will bode well going forward."

According to him, the pain that happened in China stock prices will lead to investors diversifying and giving India more weightage in their portfolios. "India stands very well to get more incremental FPI money going forward."

While he expects volatility to persist for one to three months, but in the second half he is upbeat about the India story playing out.

Commodity Prices To Come Down

Most of the world is heading towards a slowdown and recession, according to Holland, with consumers in the U.K. and Europe spending more and more discretionary money on energy bills, higher mortgage prices and food.

"The discretionary spending will start to fall and therefore, commodity prices will start to fall because the demand will not be there. Commodity-linked companies will start reducing prices, so they won't get margin pick up that you used to have before."

All these factors will slowly lead to reductions in the high commodity prices, said Holland.

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