Expect EMs to outperform developed mkts ahead: Finaport

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Markets across Asia are witnessing a liquidity driven rally, Hans Goetti of Finaport sees some more legs to it .

"ECB showed the willingness to expand their balance sheet by almost unlimited amounts. That liquidity finds its way into asset markets and one of the beneficiaries are emerging markets, where returns are potentially the highest," he told CNBC-TV18.

Goetti finds valuations attractive in India and is looking for 12% earnings growth for this year. He believes, India is relatively well positioned within Asia from a valuation and sentiment perspective to benefit from this rally. He expects India to outperform other Asian markets for the year.

Further, he also foresees Asian markets outperforming developed markets ahead.

Below is the edited transcript of Goetti's interview with CNBC-TV18. Also watch the accompanying video.

Q: Do you think this ongoing rally has more legs? We have seen it extend all over Asia. Is there more juice left?

A: There is some room on the upsides still. We have is a liquidity driven rally that's actually started last year, continued into this year. After the ECB put European banking system on the lifeline they basically showed the willingness to expand their balance sheet almost unlimited amounts. That liquidity finds its way into asset markets and one of the beneficiaries are emerging markets, where returns are potentially the highest.

Q: How much more upside would you give emerging markets and something like India from current levels after this 20% rally that we have already seen in this year itself?

A: India came off from relatively depressed level in terms of sentiment. Valuations in India are attractive. In fact the price earnings ratio is below its long-term average and we are looking for about 12% earnings growth for this year. So, if you attach a let's say 14 times earnings to that you get to 19,000. If you want to use 15 times earnings you get over 20,000. So that's the targets we are looking at for India.

Q: We have some ameliorative statements coming out of China which appears to have bridged the credibility gap with respect to Greece at the moment. Do you think that there could be some accident with Greece continuing this to and fro for a bit too long and the 14 billion Euros become due?

A: Well, there are still a lot of question marks. First of all the March 20 will be a crucial day. That is where these bonds come due. The terms have been agreed upon, but the question will be are all the private sector investments, are they onboard or are they actually willing to convert to the new bonds, which means the haircut of about 70%.

There are still a lot of issues until then, then you need the ratification of this deal by some Parliaments in Europe as well. There is still room for volatility. At the end of the day if Greece can actually live up to its austerity targets we are still talking about a debt to GDP ratio, which is currently at 160% going down to 120% by the end of the decade. That is still very high and involves a lot of pain.

The question will be, is the Greek population going along and our reading is that they don't have the staying power to do it. So, default is still an option, but it is not going to happen this time around, but it could happen sometime in the future.

Q: Liquidity has already fuelled a massive rally in commodities. Brent stands at about USD 118 per barrel level and with potential Central Bank action like maybe ECB by the end of this month. How is commodity as an asset class? What is the kind of upside you would give particularly something like crude or your top picks in commodities now?

A: We have to distinguish between the several kinds of commodities. Crude oil is one of them. Crude Oil depends on a few factors like supply and demand and political risk. The political risk premium if anything has gone up. Supply and demand is somewhat of a question mark because global economic activity is not as strong.

So, the demand for crude from that source might actually go down, but political risk premium will keep crude above USD 100 per barrel. Other commodities might benefit from this increased liquidity by Central Banks.

I am not only talking about the ECB. There is a good possibility of QE3 in the United States. The Bank of Japan is now starting to pump money again. That means asset prices in general whether it's equities, commodities or precious metals are well supported.

Q: There are a couple of potential accidents lined up for an Indian equity investor in terms of potential bad news. On February 29th we will get the third quarter GDP numbers for India and they are likely to be below 6.5%. On March 15th there is a monetary policy which may not give an expected rate cut. Likewise the Budget on the next day may make some noises about cutting fiscal deficit which might be very difficult to believe, but do you think the markets will go on regardless?

A: I think so. First of all the GDP numbers are built into today's prices that's no longer a surprise. The Budget might be a bit of a catalyst for a few things but, we don't expect much in terms of unexpected there as well.

We think that the liquidity rally will continue. India is relatively well positioned within Asia from a valuation perspective, sentiment perspective and the prospect of much easier monetary policy. Other Asian countries have already lowered rates, India has yet to do so.

Q: Do you expect institutions to increase their weightage on India whenever they have to pump in money?

A: I would think so. Everybody is underweight India and as you mentioned there are lot of concerns out there. The bull market climbs the wall of worry and it will dawn on international investors as well that India still offers a very good upside. So, we think that India could outperform the rest of Asia for the year. We are of the opinion also that Asian markets will outperform developed markets at least for the next few months, maybe for the whole year.

Q: Would you give us some more granular detail on what interest you in India sectorwise or stockwise what could benefit from this flood of liquidity?

A: If you are working on the assumption as we do that inflation is topping out and the Reserve Bank of India is starting to lower rates that means financials should do well. So that's one of the sectors that we like. Anything tied into the consumer sector, rural consumption and auto sector are the sectors that we like. Maybe we would avoid sectors that are tied into the global economy. This is because the global economy is not really as strong as some of the data that came out of the US lately suggested.