Fundamentals of int'l economy still weak: Stephan Davis

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Asian markets are holding up quite smartly and the markets have surged after Wall Street rallies on comments by the Fed Reserve Chairman, Ben Bernanke on the need for a second stimulus economic plan. Stephan Davis, CEO, Javelin Wealth Management believes that the underlying tone of the global economy still remains fairly weak. The technical rebounds witnessed in markets are only bear market rallies said Davis.

Here is a verbatim transcript of the interview with Stephan Davis on CNBC TV-18. Also see the accompanying video.

Q: Your perspective on Korea and of course on Japan, where the October report showed that there is sluggishness in the economy. Do you think that the downside risks to the economy are beginning to displace upside risk to prices in the setting up the Japanese monetary policy?

A: I think that is certainly the case. One of the key things that people need to bear in mind in relation to the technical rebounds that we are seeing at the moment, which I regard very much as being bear market rallies; is that the underlying tone of the global economy still remains fairly weak.

We have certainly been able to see a degree of recovery in the financial sector as a result of a bailout packages but as I said demand in the real economy remains anemic and that decision is not going to change for the next three to six months. One only has to look at things like global shipping rate indices to see to what extent export demand and trade flows have slowed dramatically within the last couple of months, and that is not going to be heading for a quick rebound for anytime soon.

Q: Your call on China now because there also the concern is now the economic growth slowing down.  What were the Gross Domestic Product (GDP) numbers that came out and they were quite a sentiment dampener there?

A: Correct. There was quite a good commentary that I was listening to yesterday, which suggested that if you were to see real GDP growth in China slow to 5-6%, that would be the equivalent to a recession simply because of the rate of growth they need  to be able to maintain employment.

Obviously China is going to be affected by slowing demand in the developed economies and you have only got to see that in the toy sector, where significant numbers of companies have already closed and have gone into liquidation and that remains a significant area of concern.