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May 06, 2013, 04.14 PM IST | Source: CNBC-TV18

Don't see crude rally sustaining: Macquarie's Gibbs

Richard Gibbs, global head, Macquarie Securities believes the rally seen in crude oil is 'a flash in the pan' instead of a sustainable trend. Brent crude rose to USD 105.33 per barrel after Israel struck targets near Damascus, Syria.

Richard Gibbs, global head, Macquarie Securities believes the rally seen in crude oil is 'a flash in the pan' instead of a sustainable trend. Brent crude rose to USD 105.33 per barrel after Israel struck targets near Damascus, Syria.

"I think that's (crude price rally) really against the backdrop of some positive news on the global demand front and it has had a disproportionate impact on producing that price spike. I don’t expect that to be sustained. I suspect like most geopolitical spikes, that will wash through the system in the next week or two," adds Gibbs in an interview to CNBC-TV18.

Below is the edited transcript of Gibbs' interview to CNBC-TV18.

Q: Can you just take us through all the optimism that we have seen in European markets. Do the fundamentals actually justify the five-year highs that they are trading at, at this point?

A: We are seeing that positive momentum coming through obviously from Asian markets this morning and that follows obviously from the US. The US on Friday night reported much better payrolls and some resilience in private demand. What that's done, is basically increase risk appetite across the globe and we are now starting to see that money move around. It is really in search in our view. So, it is going to be looking at those emerging markets (EMs) including India, where there is good opportunity.

Q: What are you advising therefore in terms of asset class preference at this juncture globally, developed market equities, emerging market equities, commodities- across the spectrum, what would be your best place to be invested in for the next quarter or two?

A: At the moment, one is looking at those stocks who can deliver on yield. They tend to be the most stable factors of their economies and that's where one has got pretty good, solid cash flow coming through. Seeing the companies moving and the energy sectors around the world moving, there is a lot of free cash flow in terms of revenue that's been generated.

Q: What have you made of the gain in crude? You think that will sustain or is it perhaps a flash in the pan because of the events in the Middle East?

A: I suspect a flash in the pan. The events in the Middle East do have a disproportionate impact. The Israeli actions against Syria on the border, have really heightened those tensions. So, I think that’s really against the backdrop of some positive news on the global demand front and it has had a disproportionate impact on producing that price spike. I don’t expect that to be sustained. I suspect like most geopolitical spikes, that will wash through the system in the next week or two.

Q: How positive are you on India? We had a credit policy that sounded a bit hawkish in terms of further monetary space being available. It also was very bearish on the economy if the prevailing average of economists is a six percent forecast on economic growth for FY14, the Reserve Bank came with 5.7 percent and the latest purchasing managers index (PMI) numbers seem closer to the Reserve Bank’s estimate than economists estimate. Would money come in and where would we would rank among other Asian emerging markets?

A: On the face of it, the RBI made a fairly hawkish statement. If there is a six percent headline growth number for the Indian economy, there is absolutely no way that I think inflation or the current account deficit (CAD) will be representing an impediment just further.

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READ MORE ON  Crude, Israel, Syria, crude oil, rally, US, economy

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