Fortis Invst +ve on commodities, bearish on metals

Christian Goldsmith of Fortis Investments feels one may not get complete clarity about the details of Obama’s stimulus plan today.

Goldsmith is positive on China and India economies. He is bullish on commodities but bearish on metals. He feels increased exposure to gold acts as a hedge against the economic slowdown.

Here is a verbatim transcript of the exclusive interview with Christian Goldsmith on CNBC-TV18. Also watch the accompanying video.

Q: What are you expecting to hear overnight from the stimulus package and how do you expect the markets to react to it?

A: We are focusing on the likely Geithner explanation of the revamped bailout package and most of what’s likely to be in that package is already in the public domain. So, there would be four main components of that plan, so the first component or the part on which a lot of people would be focusing the most attention is the idea of what’s being described as the aggregator bank or the bad bank to effectively take the toxic assets off banks balance sheets and put those into a vehicle in which both the US Government but more importantly to a larger extent to a private sector will be invited to invest.

The likelihood is that to encourage the private sector to invest in those assets, we will see some incentives in terms of limiting the downside risks attached to those investments. It seems unlikely that you are going to get absolute 100% clarity on the details of that plan, so that is something that is likely to be finalized in the coming days and weeks. So you are likely to find that the market is slightly lacking in details on that but that’s in the public domain and it should get a positive reaction and it enables the administration to move on issues of either undervaluing or overvaluing of those assets which would have implications on either for banks or for the tax payer.

So that’s the first part and you then have help for homeowners, you have measures to help credit more widely available for consumers and for companies and then finally you have the likelihood of further capital injections to banks but only those who are able to meet more stringent tests.

Q: Over the last few days and weeks, we have seen some strengths in markets like China in Asia. India too has not done too badly compared to some of its peer markets, is there any resumption of interest in any of these markets where the economies are still growing or should one not read much into the trading data for a few weeks?

A: From our perspective, it’s likely to remain volatile in global markets in the first half of this year and that’s something that we have said before. Generally speaking, global equities, we are pleased to see that if we look back to the November 20 lows. So far, over the past couple of months that has served as something of a floor despite a lot of bad news that has come out in the global economy and from company earnings. The markets appear to have discounted a large part of that as I said so far that those lows in November have been something to floor.

We are not looking for a real sustained upward movement in the next 2-3 months but China and India would appear to be some of the more attractive opportunities without a doubt. So China does have its own economic challenges but at the same time there are some sort of signs of light a the end of the tunnel. So we have had some stabilization in leading indicators, we have see some sort of restocking of raw materials such as iron ore, likely result of the stimulus package announced in November. We have had unprecedented levels of lending prior to the Lunar New Year holiday there and all of these have encouraging signs. We would tend to focus in China and also in India on the more domestic demand driven sectors of the market rather than those which are vulnerable to the exports slowdown.

Q: There has been quite a bit of interest in commodities as well in these past few weeks are you beginning to see money opening up in that particular asset class and then filtering into commodity related stocks in various markets?

A: We are becoming slightly more positive on commodities but we have a more bearish approach to the industrial metals that are more vulnerable to the global slowdown. Within Asia, we see a slightly different picture where the companies, the supplies of those commodities to China given the stimulus package in the focus of infrastructure. Those can look more attractive than perhaps those who are selling to companies elsewhere in the world. 

I couldn’t claim that we have seen enormous money moving back to that space but we ourselves have become slightly more positive on it. The other area is looking at in precious metals and gold and gold is an area that we have increased our exposure to within our own commodity fronts largely as a hedge against the global economic slowdown, concerns over the dollar and also in an environment of the negative interest rates and historically we have seen that gold has been an asset that has performed well.