In an interview to CNBC-TV18, Richard Harris, chief executive, Port Shelter Investment Management talks about the escalating eurozone situation and how global markets are reacting to the possibility of Greece exiting the region with which it shares a common currency.
Below is an edited transcript of his interview. Watch the accompanying video for more.
Q: We are seeing a little bit of a pull back in early morning trades after the German GDP data. Do you think any pullback will be pretty much muted until we get some clarity out of Greece? What are you expecting out of Greece?
A: The news out of Greece still isn’t really very good. We still haven’t got a government there and this is the time when you need strong leadership. So the whole situation is looking difficult now. To my mind there is almost no doubt now that Greece is going to have to leave the euro. It’s really a case of how quickly can the policymakers get their act together to make it an orderly withdrawal rather than a disorderly withdrawal.
I personally think they have got enough fire power now to protect the other markets should there be more of a crisis. I don’t think things are as bad as they were last year but I think we are likely to see a withdrawal and most people would probably have their view that it is going to be orderly.
Q: If Greece does exit the euro forced or voluntary, what are the kind of repercussions we will face, in terms of the global equity markets with respect to the entire global banking system and on the Euro itself?
A: Greece leaving the Euro could actually be quite positive to the markets. It will form a floor. It will also form a kind of a blueprint maybe for other countries to do the same. Very often when you can see when you can do it maybe you won’t actually have to do it. So perhaps we might see Portugal, some delay but I suspect it will be there. My feeling is if we do see Greece come out then perversely the markets may react quite well.
The euro looked rather better because then all those euro’s don’t have to go and support a pretty useless economy. In terms of the stock markets, it could be quite positive there as well. I am not talking about them shooting to the moon but certainly in terms of a move up that could certainly in my mind spike a move up.
Q: Are you getting a sense that the risk-off that we have seen in global markets for sometime now buttressed by Greece but not entirely triggered only by Greece because we have got a lot of poor economic data as well? Do you think we are at the last legs of the risk-off at all?
A: I am not so sure. I have been saying that we are likely to see maybe a 10% fall in the cycle, some will be 15%, some may be 7%. But let’s say we are looking under a 10% fall I would recommend probably about halfway through. I don’t think the situation is quite as bad as it was last year. We do have a lot of the mechanisms in place in order to protect the markets. So the markets will have some sort of underpinning there.
I don’t think we are near the end of this downturn. There is still a bit of bad news to come out. We are going to get to the stage where the next piece of bad news actually isn’t as bad as the last piece of bad news. When we get to that situation then the markets will probably start to flatten out and may be look to consolidate. I would reckon we are probably about half way through that process at the moment.
Q: How soon before you think the Greece will actually exit the Euro? What's the kind of timeframe you would give it?
A: It depends. First of all they have got to form a government and then there has got to be somebody there that tries to make a decision. I am sure these things are being talked about in the halls of power at the moment but what they don’t want is this kind of thing to be precipitated. The longer Greece goes on without a government, the more we are likely to see something happen in a disorderly manner.
At the moment, one of the reasons why the markets are uncertain about matters is really because that’s the key thing that we don’t know. I would say we are probably looking at a window which is unlikely to be within the month but I should say within about six months we must be looking at some sort of resolution that’s more permanent than the last one.
Q: Wouldn’t it be intuitive for fund managers to just take precaution by moving into cash and most probably greenback as the cash?
A: Yes, that’s right and I think a lot of them have already done it. The interesting thing is that the US dollar hasn’t gone up as much as it did the last time around. Gold hasn’t gone up as much as it did the last time around nor has oil. So the markets are being slightly immunized to some of these crises. That’s why I think it’s not such a bad crisis as we saw in the middle of last year.
Yes, markets always look for safe havens. This time they are not diving into them quite as much. So that’s why I think there is more downside to go but it’s getting more limited and at the end of the day equities are really pretty cheap and will certainly be worth looking at if markets fall in Europe may be another 4-5%.
Q: Our currency is at historic lows as well the stock markets have seen some near time lows. Are you at all hearing or making an argument that things have gotten pretty cheap in India or is the majority belief that things will get even cheaper?
A: I Things are pretty cheap at the moment. If you look at emerging markets in general, I just had a quick look at the Hong Kong chart, this market has been going downhill now fairly steadily since the end of 2010. Now all bad things come to an end sooner or later and eventually these markets will have to turn around. Hong Kong is honestly impacted by problems in China. China has quite big structural problems to work through. So I can see that carrying on for a little while.
India too has its own problems maybe of a slightly a different character and it will have to work through it as well. Speaking as a global investor who is pretty interested in some of these emerging markets and follows them closely, I am getting to the stage which I think we are probably not too far away from where global investors really ought to be accumulating. This time they should have more emerging markets in their portfolio than they had in the last cycle.