Patrick Legland of Societe Generale told CNBC-TV18 that currently global investors are rebalancing their EM portfolios, with most of them taking money out from the region and redirecting it into either Europe or US.
He believes that India is just at the very beginning of money being pulled. “The rupee is falling and frankly if the investors do not see reforms being able to restructure the economy there is a risk of further downside on the rupee and maybe on the Indian market as well,” he said.
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Do you think we are going to see a further pullout of money from emerging markets (EM) now that the entire Organisation for Economic Co-operation and Development (OECD) countries giving you delta?
A: Yes, I think you are absolutely right. We are currently seeing global investors rebalancing from EMs, getting out from most regions to put money either in Europe or in US.
We have indeed had some relatively good indicators on European markets. Leading surveys are showing that clearly there is an improvement. Obviously this is positive for European risky assets.
Q: What about Asian markets and India in particular where the underperformance is just extending and of course in India now there is added headwind of tight monetary policy as well?
A: The market is concerned about the fact that the Fed is clearly shifting towards a more aggressive monetary policy on one side. We consider that we are just at the very beginning of money being pulled out from EMs and possibly India.
This morning the rupee is falling and frankly if the investors do not see reforms being able to restructure the economy there is a risk of further downside on the rupee. Maybe on the Indian market as well.
Q: Would you also see some upward pressure in commodities or do you think globally there is too much of output gap for the improvement in OECD economies to engender any commodity prices uptick?
A: We are very pessimistic on commodities. On one side the slowdown in China is only starting. We should keep in mind that China accounts for roughly 35 percent of global consumption in commodities and on the other side also there is beginning of a better economic environment for Europe.
We addressed at the very beginning we are at all speaking of a strong economic recovery and frankly we are down commodities. We are down gold and there is still some further downside.