May 15, 2013, 07.21 PM IST
European assets which are highly below book value will continue to be in focus among global investors.
Europe markets have so far underperformed than US markets which has rallied close to about 17 percent. Patrick Legland Of Societe Generale believes that due to its cheaper valuation European assets will come in to focus going forward.
“You still have many assets on periphery the likes of Greece, Portugal, Spain, which are at a very interesting valuation, below book value, less than atleast European banks, which are also trading significantly below book,” Legland said. Global investors will continue to reposition in European markets, he added.
Below is the verbatim transcript of his interview on CNCB-TV18
Q: Do you see investors putting in money still despite the good run that we have seen in the markets for instance the DAX is sitting in at record levels despite weak economic data, so at these high levels after the rally are you still seeing money being infused at current levels?
A: Yes investors will use this potential slight correction in the market as buying opportunities because there is wide expectation that European Bank for Investment will act to support growth and obviously this would be positive.
Q: What is your sense about this rally in the developed markets pouring over into the emerging markets as well. Clearly now the dominant asset class for all fund managers is the US equities and the Japanese equities. But will this rising tide lift any emerging market boats and which would they be? Which countries?
A: Dev Ashish, our economist in Bangalore and working global team came with a very interesting report on China trade balance showing that China will be moving from export to import and this will be very positive for all emerging markets and countries, particularly obviously South East, India etc. Yes, this is potentially positive for emerging markets. Also short-term, investors are clearly looking for value in european assets, which are still at relatively good price. Also, on the other side US may start to be quite expensive.
Q: Europe so far has underperformed vis-à-vis its US peers. So for instance european markets have only gained close to about 10 percent on a year-to-date basis whereas a Dow Jones has a rallied for about 17 percent. So, do you expect that catch-up to take place in the European markets?
A: Yes, absolutely. In fact global investors are still significantly underweighted on European assets on one side. You still have many assets on periphery the likes of Greece, Portugal, Spain, which are at a very interesting valuation, below book value, less than atleast European banks, which are also trading significantly below book.
So you should take all this into account. It is very likely that global investors will continue to reposition in Europe taking into account that if there is growing economic slowdown in Europe, obviously this will act as a trigger for European authorities to support growth.
Q: How are you looking at the euro-dollar pair? We have seen the dollar strengthening. How much stronger does the dollar get and a connected comment on commodities, we saw this short commodities long developed equities trade up until now, but commodities appear to have hit a trough as of now. Will there be more of a sell off in commodities?
A: We have a forecast of 1.20 for euro-dollar by the year end. As United States moves from negative real interest rate to positive real interest rates, this will be absolutely good for the US dollar on one side.
On the other side we consider that the correction in commodities has only started, if I may say we had only the first leg, another leg will come and it will be supported by fact that China is slowing down and also the fact that global investors take into account what happened in Japan currently.
We had from Vivek Misra, one of our strategists’ very interesting paper on the impact of quantitative easing in Japan and what is clear is that you have a lot of flows, lot of money which is going outside of Japan and repositioning. This is positive for Europe and negative for commodities as people are clearly working on asset rotation.
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Tags: DAX, investors, , economic data, European Bank, Dev Ashish, India, South East, , european assets, european markets, global investors, Greece, Portugal, Spain, United States, Vivek Misra, China, Japan , asset rotation
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