May 07, 2012, 02.00 PM IST | Source: CNBC-TV18

EMs less risky for investment than Europe, US: Jerome Booth

Most investors are going negative on India more so after rating agency S&P expressed concerns about fiscal deficit and growing economic problems. However, Jerome Booth of Ashmore Investment holds a very different opinion and thinks India shouldn’t be paying too much attention to rating agencies.

Jerome Booth

Head Research, Ashmore Investment

More about the Expert...

Most investors are going negative on India more so after rating agency S&P expressed concerns about fiscal deficit and growing economic problems. However, Jerome Booth of Ashmore Investment holds a very different opinion and thinks India shouldn't be paying too much attention to rating agencies.

"India shouldn't be paying too much attention to rating agencies but should probably follow China's lead and have it's own rating agencies," he said in an interview to CNBC-TV18.

According to him, investment in emerging markets is clearly less risky than the countries in crisis in Europe and United States.

In the special show London Eye, Udayan Mukherjee speaks to one of the largest European investors, Booth, about how the best way of approaching the world and particularly if it is good idea to invest in emerging markets like India.

Ashmore is one of the largest money managers of the world with USD 66 billion in EMs, out of which USD 10 million is invested in equities.

Here is an edited transcript of his interview. Also watching the accompanying video.

Q: Let me start by asking you about Europe. Do you think we have seen the worst of the prices or do you think another storm is blowing this year?

A: The introduction of the LTROs, the issuance of paper by central bank is enormously helpful in reducing the extreme risks. But we still have the pressure on fiscal budgets. We still have the need to have supply side measures to boost the growth.

It’s actually crucial but we have structural reforms to reduce rigidity in the labour market to get rid of inefficiencies. That actually, I think, is the key to European growth. Clearly, there is also a lot of vulnerability. We still got more deleveraging ahead. The amount of deleveraging in Europe is at least known and we are sort of getting there.

Of course in United States we have a huge fiscal adjustment yet to come and there is a lot more denial about the scale of the problem there. So I don't think we can just talk about Europe. There are obviously problems in the United States of very similar nature, in fact more leverage in the starting position.

Q: What worries you more about Europe? The way the kind of rumblings about Spain? Do you think France and Germany could be headed to some kind of a face off from this austerity package?

A: The structural problems are everywhere in continent of Europe but Germany is not in itself important at all and very different to French economy where there are big structural problems. There has been very little change in France and yes, there could politically of course be a rupture and that is the core relationship in the European Union.

My main scenario is still very much that we move towards a fiscal consolidation with supply side measures to boost growth. This will result in further deleveraging, big bailout package but actually catharsis and low growth for a little while but not for as long as in the United States.

The second scenario is that we have further issuance of money by the central bank which is unfunded and is not replaced by private sector buyers coming and buying the bonds of them in near future, because confidence isn’t restored and that scenario clearly is inflationary.

The third scenario of an actual breakup of the eurozone is still the least likely but it has been talked about a bit more. I still know that it’s politically the least desirable by far and there are still plenty of tools that the European policymakers have to prevent it frankly. So, it is unlikely.

Q: How are investors positioned right now? Do they see another wave of risk off coming during the year because in January and February we saw quite a bit of risk on and surprised a lot of people. How do you see your investors positioned now?

A: I am a macro economist not just an investor. As a macro economist I have to say, the risks are very real and haven't really gone away. What's changing is just the perception of risk and the perception of risk is fickle.

Fundamentals are actually bit more stable not as bad as they were before. But people believe what they want to believe and people will grasp any straws of hope. So I think that's some of it.

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