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If I had just $1, I'd invest here: Stephen Roach
Never mind the wild swings, Stephen Roach, the former chairman of Morgan Stanley Asia, said if he had just a single buck to spend on one equity market in the world he'd pick...China.
"Markets around the world are really rich. I think if the Chinese market corrects a little bit more from here then it would be my first choice," Roach, who is now a senior fellow at Yale University's Jackson Institute of Global Affairs, told CNBC on Friday.
"Especially in consumer and services names," he added.
China's stock market has been on a roller-coaster ride in recent weeks amid concerns that valuations have risen to unsustainable levels and a flood of initial public offerings (IPOs) - which have drained liquidity from the market.
The benchmark Shanghai Composite (Shanghai Stock Exchange: .SSEC) tumbled as much as 7 percent on Friday, putting the index on track for a 6 percent weekly loss. This follows a 13 percent plunge last week - its worst weekly decline since 2008.
The index, however, remains up 34 percent year-to-date - putting it in the ranks of the best performing markets globally.
Addressing the disconnect between China's soft macro-economic backdrop and its sizzling stock market, Roach says it all boils down to liquidity.
Over the past six months, the People's Bank of China (PBOC) has been easing its policy stance to maintain adequate interbank liquidity. In April, it lowered the reserve requirement ratio (RRR) for banks by 100 basis points to 18.5 percent - the deepest single reduction since the depth of the global crisis in 2008, according to Reuters.
"The U.S., for example, is in the midst of the worst recovery in its post-World War II history. Yet the stock market is up three times from its trough in 2009," he said. "These are liquidity driven markets and investors believe that central banks are just going to be there and keep pouring punch in the punchbowl."
Read More Why Chinese stocks could slide 50 percent
Experts remain divided over how to trade the notoriously volatile mainland markets. Morgan Stanley on Friday advised investors against buying the dip in the market, noting that it has likely already seen its peak in the current cycle.
The bank set a mid-2016 target price range for the Shanghai Composite at 3,250-4,600 - representing anywhere from a 22 percent slide - in a worst case scenario - to a 10 percent rise - in a best case scenario - from current levels. The index traded as low as 4,190 intraday Friday.
"Our stance on China A-shares is that this is probably not a dip to buy. In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and Chinext has now taken place," Morgan Stanley wrote in a report on Friday.
Roach was less sanguine on the outlook for Japan equities, despite the Nikkei 225 index (CBOE: .NKXQ) rising to its highest level in more than 18 years earlier this week. When asked about the possibility of the index climbing back to its 1989 peak of around 40,000, he said: "Forget it, that's pure fantasy."
"It's been 25 years of lost decade-like growth in Japan. The last thing Japan needs is to go back to a bubble mindset which created the monster in the first place," he said.
Roach says the jury is still out over whether Abenomics, or Prime Minister Shinzo Abe's plan to kickstart the long moribund economy, will be successful.
"There are reasons for encouragement on some ground but it's really early in the game to conclude that it is a successful campaign especially in light of political resistance to the structural changes in the third arrow," he said.
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