Mar 07, 2012, 06.23 PM | Source: CNBC-TV18
Jason Hughes of IG Markets is optimistic about emerging markets while not being too hopeful about the crisis in Europe easing soon
Jason Hughes (more)
Head of Premium Client Management, IG Markets | Capital Expertise: Equity - Fundamental
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Have the markets juiced out all the liquidity that was available from LTRO? Is that the prime reason for the markets sulking?
A: We are seeing some interesting moves overnight and as you said we could have had a worst reaction in Asia. Itís actually good to see markets, not actually falling too badly today, in the Asian trade and we are finding a little bit of support there. The overall fear I guess, is that we are slipping back into a position of greater European concerns and perhaps, there is still another twist in the tale of the Greek situation and obviously the lower growth that we are seeing around the globe, in particular Europe, in focus once again has sort of brought a bit of skepticism and maybe a bit of caution into the tradersí mindset.
However, the LTRO second tranche that just went through last week means a total of 1 trillion euros had been pumped in on sort of three months base by the ECB. That liquidity is not necessarily going to get lost within a few days. We are probably seeing a bit of a consolidation and maybe a small pullback correction. But on the whole, there are still a number of bullish views out there even after last nightís sort of big falls.
Q: What are investors talking about in terms of these global growth rates coming out from emerging markets? And where do you think money will possibly be allocated in terms of a risk on trade if it has to re-emerge? Will we see that same amount of resurgence in terms of allocation towards emerging markets?
A: For sure. Some of the best rates of growth that you can get will be in the emerging markets space. It is kind of interlinked at the moment with the global outlook being dominated by European growth and when you look at emerging market economies they are often fueled by US and Euro demands. So itís not surprising with the uncertainty there that the absolute sort of revisions downward to coming out from China and poor figures out of Brazil.
When we hopefully break the back of this Euro crisis, then we can start to move on and at the moment itís just the question of when the bad news is going to stop. And the latest sort of PSI stumbling block or herd in the way has just sort of has just sort of suggested to investors that we might not be out of the woods yet. But as we touched on with the LTRO there is extra liquidity in the system, there is a bit more slack and the first few moths of the year were actually quite encouraging, in terms of data coming out of particularly, the US. So if a positive mood returns then for sure we can see the emerging market space go back to sort of being where investors look to get those really high returns on their investments.
Q: Where would they look? What would be three smartest ideas that smart money might chase in the next six months?
A: There has been a few sort of suggestions that Indonesia had quite a good run last year and a lot of money was sort of, seemed to be going that way and that still might be quite a positive move. You do also have your more traditional places that investors look towards, which is India and China as the real power houses of the emerging market space. But the global outlook is the big thing at the moment and while we have uncertainty there investors are potentially going to be chopping and changing and maybe taking slightly shorter term views on things and perhaps keeping themselves nimble rather than taking long-term large investments.
Q: There seemed to be couple of bearish trends or triggers for commodities perhaps. The liquidity story seems to be over. We were going to have LTROs and maybe a QE3, but now the Fed has indicated no QE3 as well the LTROs are over, they are behind us. Do you think the best of commodities or at least, itís not going to be the big growth story in commodity assets this year?
A: If you look at the sort of commodity-price action over the last 12 months or so, other than crude, we have seen most of the industrial and agricultural commodities ease back from the high point at the beginning of 2011. There is no necessary reason to believe thatís going to change. The fact of the matter is we are in a sort of low-growth global economy going towards certainly, for the next 12 months and additional pressure in Europe may well see that Eurozone going into a hopefully, if it does, short recession but maybe even a longer term recession might be even detrimental to those types of prices.
We have obviously got the crude story which just adds issues, if we sort of add say 10% to these current prices, do we get unsustainable levels of oil price where itís going to hamper growth even more? So the Iranian tensions are going to play a part in this and realistically, if oil does start to impact on growth, then we could see that have a negative effect on all commodities.