Why investors should brace for second quarter sell-off

Architas CIO Caspar Rock has predicted 2012 will be another "bumpy year" with rising equity markets until the second quarter, when there could be another sell-off.

Rock said he is more or less neutral on equities for this reason but adds expectations are much lower than last year so there may be some upside.

"2012 is going to be another bumpy year but there are reasons to be less gloomy - the US economy is growing, which is a positive pointer, the eurozone crisis will run along but we are working towards a solution and valuations are relatively cheap," he said.

"If we see a pick-up in the US property market and a soft landing in China, we should see signs of greater confidence in the markets, particularly with high levels of cash in portfolios."

However, the key catalyst for stronger equity markets is a sign of stabilisation in the financial sector in Europe.

"I think in the medium term we have better equity markets. but there is a risk of a sell-off in March, April or May when we reach the refinancing cycle in Europe. There are big concerns about that and the banks' fundraising."

He gave the example of Italian bank UniCredit. The company's rights issue was "well-flagged", said Rock, but the share price has slumped 38% since Monday.

"This is a bank perceived to be in a less worse situation than some. We need to see stability in the banking sector before we see a pick-up in prices," he added.