Michael Preiss, Associate Director-Investment Advisory Group, HSBC said the Yen appreciation might prove to be a dampener for equities.
He added that there is a big flush of money waiting to enter Indian markets and a lot of money coming in the markets may be borrowed money.
Excerpts from exclusive interview with Michael Preiss:
Q: What will happen to global equity markets over the next month or so? Are we getting into a bit of a sticky patch now?
A: Most probably, yes. It is a bit like a replay of what we saw in February. There was a question on whether the US housing issue and the subprime mortgage issue is just contained in the United States or whether it can even spread to other parts of the world.
The market seems to imply that even in Europe, the cheap credit financing bubble is actually about to burst and a lot of these deals are actually going sour. So, to some extent that is actually putting pressure on global equities.
The question is whether we should really go long or reduce exposure or whether to go short. Most people would agree that, at the moment, it is better to take some money off the table, go a little bit on the sideways and watch and see.
Q: What is the call on India because we are only beginning to catch up and reports indicate there is a big flush of money waiting to come into the market?
A: The words you used are right. There is a big flush of money. But let us not forget that a lot of that money is actually borrowed money. It is a lot of money done on leverage out of the carry trade, whether it is Swiss Francs or Japanese Yen. Both of these currencies are rising.
So, the real question is whether we see risk aversion rising around the world. The economic fundamentals in India and many emerging markets are excellent.
The only question is whether the financial market is ahead of itself. We see spreads widening and hence, basically people take a more cautious approach, and that could ripple through the system.
That is why we had this big sell-off in the United States yesterday. People realised that there could be systematic risk out there. Hence, they scaled back some of these positions, and in addition to that, the Yen is rising.
Rising Yen and widening spreads is exactly what you would like to see if you want to consider a short position in equities.
Q: Pertaining to India though, what sort of queries do you get from your HNI clients and what sectors at this look the most attractive?
A: Generally speaking, the most attractive sector as a long-term investor, is still infrastructure. Chidambaram said the same thing that India needs to spend more on infrastructure development. That is definitely a long-term investment trend where you cannot go wrong.
On the other hand, HSBC, and some old friends at Wall Street, always were underweight on India, irrespective of the fact that the Indian economy and the Indian market, performed very strongly. But the house view is still that investors, in a well-diversified portfolio, should have less assets in India. Their view hasn't really changed because of valuations.
No comments:
Post a Comment