From where I stand most market analysts and our own estimates are still nowhere near current market prices. As a matter of fact the upside that exists between our price targets and markets prices is consistently above 20 per cent.

As an example; Apple’s earnings for the last 12 months was $9.38 per share. Suppose Apple does not increase earnings going forward. This still implies that investors will add $9.38 to their wealth for each share of Apple they hold. At current prices this would mean a 10 per cent increase.

This story is common across the equity markets. So unless we price-in a catastrophic scenario whereby earnings are slashed across the board, the market appears to be oversold.

Before I elaborate, let me review the principles around which I would use to construct an equity portfolio. My investment style focuses on themes that I believe will be winners in the next investment period.

My top themes in the US sphere are based on technology, retail, payment systems, entertainment. In the European region I have focused on the auto sector, pharma, technology, insurance and French banks.

I have completely avoided common favorites such as oil and gas and natural resources for the past five years.

Within these spheres I would go for large well managed companies based on fundamental analysis. The reason why I focus only on quality names is mainly because this offers protection from market sell-offs.

While it is normal that exposures are sensitive to market corrections, these investments have always rebounded strongly from periods of market decline such as Lehman, Greece crisis, the Euro crisis, Grexit etc.

Thus I am reluctant to dispose European equities despite large losses since December, because I believe that they are well below their fair value. At these prices I prefer buying into the market rather than selling.

I am also prepared for a volatile 2016. Additional monetary support will probably provide some support. However, this scenario is of secondary importance in my view. What I want to see is a return of optimism.

Unfortunately, we are living in a deteriorating global political scenario which invariably leads to an increase in trade barriers. Firms have to scale back trades leading to a slower growth.

Countries that normally rely on oil exports have to sell their valuable assets, thus depressing asset prices even further. And banks, the lifeblood of capitalism, are being strangled by more and more regulation designed by lawyers and regulators who have never in their life traded a stock.

Equilibrium will not be reached in the short-term. Rather we will experience large price movements as markets swing from crisis to crisis. In this environment I am comfortable sticking to large cap equities, maybe adding allocation if prices deteriorate further.

Disclaimer: This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd. has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.