 "Jan Lambregts")
London-based Jan Lambregts, managing director and global head of financial markets research at Rabobank International, tells Puneet Wadhwa that India's key performance indicator, crucial for attracting investors, will be the pace of structural reforms. Edited excerpts:
Will emerging markets (EMs) benefit from the diverse monetary policies across the globe that promise to push in more liquidity? How will developed markets fare in comparison?
It's dangerous to use a broad brush approach here, as some EMs face daunting challenges either politically, economically or both. Nevertheless, in a world that remains awash with liquidity, investors will selectively continue to return to those EMs where fundamentals are relatively robust. These can still outperform developed markets, where, increasingly, investors are wondering whether the medicine provided by central banks is still effective.
What is your interpretation of the developments in Japan and China?
Japan continues to struggle with low growth and low inflation. Look for the possibility of ever more radical steps when it comes to policymaking; as such, Japan is in the vanguard for the rest of the developed world. The lessons we observe there are most important for global financial markets.
In China, the next six to 12 months might actually be relatively upbeat. It is quite clear that policymakers are focused on the short term and willing to do "whatever it takes". The upbeat short-term outlook, however, has been bought at the expense of medium- to long-term sustainable economic growth.
Increasingly, like in the rest of the world, Chinese policymakers know what needs to be done in terms of structural reforms to put the economy on a more sustainable consumer-driven path. They just find it hard to take the near-term pain to produce such long-term gains. This is worrisome towards 2017-2018, but there might be economic growth in line with government targets for 2016.
Do global markets have anything to worry about in case Donald Trump becomes the next US President?
The prospects of a Trump presidency could produce additional economic and financial market uncertainty. It's rather early to tell, however, as Trump has been sketchy on policy details so far, and could possibly moderate his tone now that he's the presumptive Republican nominee. Given the volatile campaigning so far, on balance we suspect it injects additional uncertainty in the already-volatile global financial markets. But, we don't want to overplay that at this stage.
How are the markets likely to react to an unfavourable Brexit vote?
An EU referendum vote in favour of "out", would lead to a period of increased uncertainty as Britain has to re-negotiate important treaties. The immediate financial markets reaction will be a continuation of the trends we have seen already, such as additional selling pressure on the pound (GBP), reflecting that uncertainty. The long-term impact of an "out" vote is much more uncertain and depends on the relative success with which the treaties would be re-negotiated.
If voters choose to vote in favour of "in", then it's business as usual. Presumably, some of the uncertainty priced in will seep out of markets, which would be akin to a 'relief' rally.
How are investors seeing India as an investment destination amid all this?
Amid plenty of global liquidity, selective EMs have an opportunity to stand out positively and attract fresh inflow with investors looking desperate for yield. India's key performance indicator, and crucial for the relative success in attracting these investors, will be the pace of structural reforms. Even moderate progress there could have an outsized impact.
With the Modi government nearing completion of two years, what have been the key hits and misses from a market / reform perspective?
All the reforms worth noting have been from the Reserve Bank of India; the government has only been tinkering for now, although we have high hopes for the goods and services tax Bill.
