No certainty on FY09 earnings outlook: Absolute Strategy

Ian Hartnett of Absolute Strategy attributes the current state of European markets to concerns about credit markets, the follow-through into the real economy and German industrial production numbers.

There is no certainty about earnings outlook for either this year or 2009, he said.

Excerpts from CNBC-TV18's exclusive interview with Ian Hartnett:

Q: Are these worries entirely settled or settling around the credit market problems?

A: It is a combination of concerns about credit markets plus also the follow-through into the real economy and particularly those very disappointing German industrial production numbers yesterday, where growth decelerated from 5% to below 1% in just one month YoY.

Q: What about the news about the bond insurers looking at liquidity issues and looking at raising cash essentially? How do you think that’s settling down with the financial stocks in Europe?

A: The financials are still clearly under pressure and in London, despite the fact that a number of UK banks are now on dividend yields of over 12%, people are still very wary about taking them onboard. So, there is no certainty about earnings outlook for either this year or 2009. It is just encouraging people to hold back. But I do think that today has the feel very much of a capitulation trade.

Q: Is there panic selling in Europe right now?

A: It certainly feels as though that there is a very high level of nervousness. The way that the stock market is just fallen away this morning, it is indicative. We are now down probably 24% for the major European indices so far this year.

Our target is around about the 30% before we can start to feel more comfortable about buying. But certainly it does feel today as though there is a sense of real concern.