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Michael Every, head of financial markets research for Asia-Pacific, Rabobank International talks to Puneet Wadhwa on the road ahead for the equity markets, economy and outlook for crude oil amid rising geopolitical tension in West Asia. Edited excerpts:
What is your opinion on global geopolitical situation given the developments in Iraq and Ukraine? There are fears of a partial shutdown in Hong Kong as well. Can all these developments send the global markets into a tailspin?
So far markets are showing relatively little concern from recent geopolitical events, largely due to the backdrop of ample central bank liquidity. While said developments are extremely concerning, unless we see a major impact on oil facilities in Iraq and Iran, that is likely to remain the case for now.
How do you see the crude oil (Brent) prices panning out as a result?
Oil prices have already risen a little, but how much further they will rise really depends on facts on the ground in the Middle East. Any threat of damage to major pipelines or refineries would be very concerning for the markets.
Do you think that the spike in oil prices could be significant enough that it derails the economic recovery in the US and Euro-zone and impacts the emerging markets as well?
If oil prices increase significantly further then there is certain to be a negative impact on both the US and European economies; the same is also true for emerging markets of course.
How do you place the emerging markets now as compared to the developed ones in terms of investment preference in this backdrop? Which regions make it to your investment list?
Investors are looking for yield, primarily, and wherever that can be found they will head. Emerging Asia still looks a region that will continue to attract significant interest given its growth potential.
Given these developments, how do you see the key macros like inflation, GDP growth, fiscal and current account deficit (CAD) playing out in the Indian context amid fears of a deficient monsoon this year?
Obviously a poor monsoon season would potentially be bad for growth, inflation, the fiscal deficit, and even the current account deficit: let’s hope it does not occur, or that the drop in rainfall is only moderate.
What about the rupee? How much elbow room does this leave for the Reserve Bank of India (RBI) to tinker with the key rates?
The rupee is currently looking well supported given a much smaller current account deficit and substantial capital inflows; indeed, it would likely be appreciating further if it were not for RBI intervention, a trend which is likely to be sustained ahead to help build up forex (FX) reserves.
