Mirae Asset - Robert James Horrocks

What is your view on the impact of the US subprime crisis on emerging markets such as India? Securities markets are definitely worried. That much is obvious from the recent declines. Having said that, the subprime issue itself does not have that much impact on India. What does have an impact is the change in the overall environment - widening credit spreads, falling risk appetite, and rising real interest rates. This is happening globally, even in India and that creates headwinds for the markets. Markets such as India are suffering losses due to global cues. But at the same time, they are fundamentally strong. How long do you expect this situation to persist? India has actually stood up quite well. However, I do not agree that there is no fundamental reason for the falls. "Normalisation" of risk appetite is a real thing. Also, we must still be mindful that a slowdown in global growth will have some impact on Indian growth and a fall in global liquidity will impact India's ability to finance future growth. These are real issues. We certainly are focusing on domestic demand plays with strong earnings visibility and reasonable valuations. We find these particularly in the infrastructure and consumer sectors. Do you think foreign investors could increase their exposure to markets such as India? They may. Many investors have long argued that we will see a switching in the growth engine of the global economy - from a heavily indebted US consumer to a consumer in Asia that has high levels of savings. This will cause current accounts in the US to move back towards surplus and those in Asia to move back towards deficits. This is the long-term view and accompanying it there should be dollar weakness and deleveraging in the US, mirrored by currency strength and re-leveraging in Asia. Disappointingly, in the recent period of dollar weakness, it has not happened this way and Asian economies are still highly integrated with US demand, the US current account has widened and our economies have built up large surpluses. Nevertheless, we do see signs of policy change in China to try and achieve the necessary rebalancing. India has perhaps already gone further down this route than anyone - strong domestic demand and currency strength being two key areas. I think we take a realistic view about how quickly this can happen and how smoothly it can happen. We remain strategically committed to domestic demand plays in Asia, but all the while willing to take tactical decisions to protect ourselves in periods of market volatility. If our view is correct, then slower rates of growth in the West will probably lead to faster inflows to Asia over the long term, but there will be volatility along the way. How do you look at the overall liquidity situation? Liquidity has returned to what I would call a "normal" situation. I think many people have forgotten that the period of liquidity from 2002 until the middle of last year was extraordinary in the fact that real interest rates were very low compared to prevailing rates of growth. The unwinding of this liquidity and the consequent fall in risk appetite has been shocking to the markets. But we are only returning to a more "normal" situation. That means ore normal levels of growth, more normal levels of profitability, and more normal valuations. In my view, the FED will cut rates if it sees one of two things happening - a sustainable fall in core rates of inflation or a dramatic fall in GDP growth. In terms of inflation, a sustainable fall means that core rates must be slowing and that inflation expectations remain contained. In terms of growth, the FED will be watching retail numbers in the US closely to see what impact the recent asset market problems and falling home prices have had on the sentiment of US consumers.