Even if the US Federal Reserve decides to announce a first cut in asset purchases of USD 10 billion, emerging market equities may not get affected too much because they have already factored in a much bigger taper than USD 10-15 billion, believes Markus Rosgen, Citi.
Speaking to CNBC-TV18, Rosgen said that one has witnessed a return of foreign interest to EM markets last week, so he expects emerging markets to head higher. From the EM basket, he is positive on Korea, Taiwan and China and remains underweight on India. Most of the flows into India were ETF related and hence may be categorised as hot money, he explained.
"With Fed tapering and improvement in global growth, more cyclical stance may just be the way forward, so markets like Korea, Taiwan and even China may be the place where one should be in instead of more domestically-focused markets like India or South-East Asia," he added.
Below is the verbatim transcript of Markus Rosgen's interview on CNBC-TV18
Q: What is the sense you are getting, if Ben Bernanke indeed where to announce USD 10 billion in terms of the first cut in asset purchases the market has a little more, risk assets have a little more to go?
A: In terms of equity markets we continue to be optimistic especially for the emerging markets, they have tended to price in a much bigger taper than USD 10-15 billion that one is talking about. So we think markets can go higher and looking into next year we see upside on the global perspective for equities.
Q: What about a market specifically like India which has pulled back quite a bit, how are you approaching the Indian space now?
A: In terms of India we have India as an underweight and have been all year. One of the concerns that we had regarding India was that from a flow perspective India has been overly compensated by investors. So there was a very big overweight on India by investors and a very big overweight in the South East Asian equity markets. And we just felt that tapering as in itself was a sign that global growth was actually improving and with the improvement in global growth we felt that a more cyclical stance was probably going to be the way forward and so we preferred markets like Korea, Taiwan and even China to the more domestically focused markets like India or South East Asia.
Q: Two part question, what was the nature of the flows that came in the last couple of weeks into India? It was almost USD 800-900 million, was it largely what you could call hot money or money that could go out quickly, it was just taking advantage of the Nifty level and the very cheap Indian rupee at that time, were there any long only funds participation at all?
A: When we looked at the positive flows for the last week it was mostly Exchange Traded Fund (ETF) driven. So we could call it hot money but it is just money that is looking for an opportunity and an ETF is probably the best, quickest and cheapest way to take care of that opportunity. So it wasn’t kind of the slower and more sticky flows that you would like to see, sadly.