Buy-the-dip may be the mantra for some investors in the selloff that’s gripped global stocks this month, but not so fast, says Amundi’s Raphael Sobotka.

The latest pullback should wipe off some of the recent exuberance in equity markets, but investors need to let the dust settle first on this “volatility shock,” said Sobotka, who helps manage 45 billion euros ($56 billion) in invested assets at Amundi. Equities around the world have tumbled since the end of January in a U.S.-led rout that saw market volatility spike.

“Tactically, we had been reducing our exposure to equities since December, and we further sold stocks over the past week,” Sobotka, who heads the flexible, risk premia & retirement solutions unit at Amundi, said in an interview. “The equity exposure of our flagship fund, Amundi Patrimoine, is now 26 percent, down from 35 percent at the market peak in late January, and 40 percent at the end of last year.”

Unprecedented moves in the Cboe Volatility Index spooked investors this week and roiled the market for exchange-traded products. The Dow Jones Industrial Average posted its biggest-ever point plunge, while the S&P 500 Index erased an annual gain.

U.S. stock valuations have fallen back, Sobotka said, “but the market isn’t cheap yet, and given that rates will continue to rise, the pressure on equity valuation ratios can continue to increase from here.”

He remains bullish for stocks in the longer term, saying the recent pullback has mostly been technical and the global economic backdrop remains solid. “This selloff has mostly been fueled by the unwinding of extreme short positions on volatility and on risk parity strategies. You don’t see stock pickers selling their favorite companies here.”

Source: Bloomberg

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