Another year to sell in May and go away?

The fundamentals are stacking up against equities. Interest rates are definitely up, and on the way up. High oil prices are beginning to cause consumer price inflation. Sales in major markets are slipping and with them the outlook for profits. And the US trade and budget deficits are keeping the US dollar under pressure.

How anyone can be optimistic about the prospects for global stocks in such an environment has a lot of imagination. It is not as though market valuations are cheap, by most standard measures markets remain above their long-term average valuations.

In the Middle East stock markets have lost their shine in the past week or two. Many investors note the classic share price spike - even in the UAE the 45% gain in April can hardly be sustainable under any rational analysis - and are quietly moving towards the exit door.

Undoubtedly first quarter profits were fantastic, but are they sustainable? Is there room for further improvement?

Across the Middle East many listed companies have been including profits on share trading and asset disposals as headline profits. These are therefore not profits that are likely to continue unless share prices continue to surge ahead, and everybody knows this is impossible.

Moreover, even if the profits outlook for some companies is good, is it really as good as the share price suggests? History is full of massive stock overvaluations which came crashing back to earth.

Thus regional investors who 'sell in May and go away' will probably find themselves delighted at the wealth that they have preserved while others hang around to learn, once again, that what goes up must come down.

The global picture for equities is equally bad, though markets have not soared to such great heights and so have less far to fall.

But to be resolutely optimistic in the face of rising interest rates, high oil prices, a US dollar under pressure, and collapsing consumer confidence and rising inflation is plain irresponsible.

Take a leaf out of the book of 74 year-old Warren Buffett, the world's most successful investor. He has more than half his assets in non-dollar cash or equivalents, and a smaller percentage invested in the stock market than since he became an investor!