Chances of a deeper correction rising: Chris Wood

Chris Wood of CLSA said that the chances of a deeper correction are rising. He feels that the best case scenario is S&P 500 at 1200 by year-end. Employement situation is still very mixed and fundamental data will disappoint next year. He feels that easy monetary policy in Asia can create asset bubbles. He said that he would use significant correction in Asia to buy into stocks. Worse case correction in Asia is 1/3rd of the highs. He is favouring China over India this quarter.

He further said that India is most likely the Asian country to see first rate hike. Better earnings seen in US have been driven by cost cutting rather than revenue growth. He feels that US is on the brink of a deflation. Dollar weakness is driven by carry trade, and has become the new funding currency of choice. Investors borrowing is much less through Yen and Swiss Franc. The US dollar can strengthen only if equities correct.

He feels that RBI won’t be aggressive in monetary tightening. He said that Real Estate is not his favorite sector to buy in India today. Markets are giving some initial indication of a technical break down in the US and best signal of a correction can be tracked by dollar movement. He is seeing increasing decoupling in Asian economic cycles in 2010. He advises investing in India and Emerging Markets in 2010.

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