JF Asset Management is making a case for the likelihood of an equities summer rally, particularly in August and September.

One reason for that expectation, and perhaps the simplest explanation, is that stock markets worldwide have been sharply oversold year-to-date and are due for a respite from all the gloom and doom. The summer rally will likely be a bear market rally, however, with uncertainty and volatility characterising market movement in the months beyond September.

ôThat old saying of sell in May and go away didnÆt actually come true this year,ö says Geoff Lewis, head of investment services at JF Asset Management in Hong Kong, because doing so at the time would have meant taking huge losses. ôWe would put our money on a summer bounce.ö

A bear market rally in the next two months would provide investors with an opportunity to cash in on some gains (assuming they bought into markets when they fell) or cut their losses (assuming they have been holding on to their holdings since the market highs), says Lewis.

ôThe next two months will be a chance for investors to dial down their risk and take some exposure off the market,ö Lewis says. ôThe great summer bounce could well be underway and indices could run further into the coming weeks, but we would not chase it from a strategic perspective.ö

For investors with a two- to three-year investment horizon, the correction thatÆs bound to come after a bear market rally will provide good entry points for accumulating shares of companies that are fundamentally sound and rank high in terms of their individual stock convictions, Lewis says.

ôInvestors can commit more money in equities during the next correction as long as they are not counting on any short-term gains,ö he says.

Lewis notes, however, that buying into equities û whether during a correction or not û may be easier said than done.ö We think investors, under the current environment, will not take anything on trust.ö

Asia, in particular, offers good long-term investment opportunities, but that could be a hard-sell given the general risk aversion thatÆs dominating the markets worldwide, Lewis says.

Whether or not a summer rally takes place will also be contingent on the price of oil. If it rose to $200 per barrel û a possibility that Goldman Sachs has raised û this would lead to further risk aversion among investors, for example. ôOil is very much a wild card for equities markets,ö Lewis says.

Within a global equities portfolio, JF Asset Management is: overweight in US large-cap stocks and Japan; neutral in the UK and in the Pacific ex-Japan; while underweight in US small-cap stocks, Europe ex-UK, and emerging markets.

Within the Asia-Pacific region, JF Asset ManagementÆs most bullish positions are in China and India. It is also overweight in Australia. It is neutral in Hong Kong, Indonesia, Korea, Singapore and Thailand. It is underweight in all the other markets in the region.