Arnab Das, Roubini Global Economics feels the rout seen in the emerging market region is not done yet. He says countries like India, which are capital thirsty, are going to be in the forefront of this risk reduction episode across global markets.
Below is an edited transcript of the interview on CNBC-TV18
Q: This rout in the emerging market equities, do you think we are midway through it, end way of it or do you think there is much more to go?
A: I do not think we are finished with the rout in any of the emerging market asset classes, maybe we are more than midway but there is more to come. After all, what we know about the global environment is that the West is showing more signs of recovery. That points to tapering from the Fed.
We do not know exactly when that tapering is going to come. We do not know how much tapering is going to be. We do not know yet when the tapering will be followed by stop in the expansion of the Fed’s base money, more do we know when and by how much the Fed will tighten.
There are lots of stages in the shift in the US and therefore the global monetary and financial conditions environment that have yet to take place that would stretch out for a couple of years and it is that uncertainty and the threat of the coming reduction in the easing of monetary conditions that precipitated all this and on top of that now we have the Syrian situation becoming more escalated.
So, countries like India which are capital thirsty are still going to be in the forefront of this risk reduction episode across global markets.
Q: Focusing on the geopolitical tensions now, if in case something does culminate on the negative side have you all thought about where that would leave the Fed in terms of its tapering programme. Would there be any change if in case the geopolitical risk does emerge?
A: I think it has to be said that the risk is in emerging market. The news is more or less consistent that United States and United Kingdom and France are likely to at least continue to escalate the situation because of the use of weapons of mass destruction. So, that risk is increasing. I guess the question is when and by how much the risk will materialise.
In the end that process will probably prove to be temporary blip in the scale of what is going on in the US. It doesn’t mean it won’t be more important for other countries but the US will be managing monetary policy for its own benefit, after all that is what the Fed is mandated to do. So, at the end I do not think that will make a huge amount of difference for the timing or the quantity unless the situation becomes very extreme and protracted. So, far what is in the air is a 48 hour kind of strike so, by itself that probably won’t change the dynamics for the US itself.