Global equity and commodity markets are on a crash course due to fears of the euro zone crisis intensifying and tension between the two Koreas. One of the largest foreign institutional investors, JPMorgan, however, says there is a silver lining in the dark cloud. Adrian Mowat, managing director and chief Asian and emerging market equity strategist, tells Palak Shah they will start buying Indian equities soon. Excerpts:
How long will problems in Europe last and what will be their impact on India? Which regions and sectors will see further impact of the slowdown in Europe?
Watch economic data, not the markets. European manufactures are benefiting from strong global growth and an increasingly competitive currency. Note that German, Italian, French and Spanish PMIs (manufacturing activity surveys) remain strong. The smart money should look to buy companies with large European exposure that have been oversold.
In recent days, foreign institutional investors (FIIs) have been the biggest sellers in India. What is scaring them away? At what levels do you see the benchmark equity index in the near term?
Always place FII activity into the global context for risk appetite. Three key global concerns for markets are deteriorating in sync; euro sovereign debt stress, financial regulation and China overheating fears. Add to these the heightened tension in the Korean peninsula. Faced with these concerns, a rational individual will reduce risk. Equity holdings, including that of Indian equities, are thus being reduced. We believe that MSCI Emerging Markets index should be bought below 840, it is at 860 today. India is moving with global markets and so we will be a buyer of India when it hits 840.
Will the US dollar and gold rise further from the current levels?
It is euro and commodity currencies (e.g. the Australian dollar) that are weak. Note that the dollar-yen exchange rate is stable. Euro weakness is the trend for now.
To what extent will the recent trillion-dollar package to the euro zone help?
The euro-zone package is designed to prevent contagion. In helping to keep the financial system working, it avoids damaging the economic recovery.
