A tsunami of bad news has engulfed global equities in recent weeks, and technical analysis by London-based Collins Stewart Wealth Management suggests that markets have become oversold. For the more tactical investor, the latest sell-off may represent an attractive buying opportunity, according to Alan Brierley, head of investment trust research at Collins Stewart.

Mr Brierley continues to see further material falls in equity markets over the next three quarters. “Global financial markets are unable to cope with the synchronised bursting of the asset and credit bubbles, which fuelled the greatest destruction of wealth in history. The world economy is now facing a perfect storm of falling growth and deflation. On the downside, the deterioration of economic and corporate data is accelerating,” he said.

Valuations are not compelling, Mr Brierley adds. He explains: "We continue to encounter arguments that both equities and the investment company sector represent good value. We do not agree. The trailing PE may look attractive in a historical context but it has its limitations. Using a cyclically adjusted PE ratio, the 10 year PE ratio of the S&P Composite is now 14x against a long-term average of 15x.”  

He notes that this ratio fell to single digits before previous bear markets have ended. "Within the closed-end sector, we see further downside risk in discounts. With many sub-sectors trading on sub-10 per cent discounts, there is little margin of safety.  Indeed, the increasingly desperate search for yield has resulted in the UK and global growth and income sectors now trading on demanding premiums," he said.

But, in the short-term, Mr Brierley sees the market as oversold. “While the fundamentals continue to deteriorate, certain technical analysis suggests that markets have become oversold following the sell-off in the past couple of months,” he said.

He notes that the current bear market was punctuated by seven short and sharp rallies; the average increase in the FTSE 100 has been 18 per cent and has lasted for 25 trading days.

Mr Brierley is bullish on the investment company sector, as it is populated with many companies with higher beta characteristics, either as a result of their investment focus, management style, or balance sheet gearing. He highlights several stocks which should perform well in such an environment including Atlantis Japan, JP Morgan Euro Growth, JP Morgan American and Schroder UK Growth.  

Collins Stewart’s investment services including financial planning, portfolio management, stockbroking and investment funds.

The company manages and administers in excess of £4 billion of assets (£2 billion of which is on a discretionary basis).