Greek solution close; room for global liquidity rally: HSBC

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Philip Poole, global head of emerging markets at HSBC is upbeat about Greece. He tells CNBC-TV18 that the nation is getting close to a solution to the crisis and that a debt swap deal is most likely before March.

Poole expects the European Financial Stability Fund (EFSF) to run alongside the European Stability Mechanism (ESM) this year. He says that there is more room for the global liquidity rally and finds valuations attractive from medium-to-long-term. In India, he likes the consumer discretionary stocks.

Below is the edited transcript of the interview. Also watch the attached video.

Q: Does it seem likely after the debarring of the last few days that we will likely see a resolution on Greece which will be a positive outcome?

A: Certainly it seems to me that we are getting close to a solution on the swap to an agreement on the swap. There is a lot of noise obviously around that swap deal, a lot of apparently entrenched positions on both sides, on all sides in fact, but it strikes me that the deal will get done and we are quite close to it now. There is a question whether that ends up being enough with the present value of lost probably in the order of 70% on as instrument whether that's enough to restore Greek debt sustainability overtime. I think what's important is will the ECB be part of that, that seems to be about to happen as well formally but it strikes me that in the future may well be a need to come back to this deal to further negotiations. So I see this as the step in the right direction assuming of course it happens, but probably part of a longer term process.

Q: If it is to be a swap how soon do you think it may get implemented and executed and what could be the contours of that agreement?

A: Yes I think that the swap will get done before March actually or before the end of March certainly. There are number of hurdles in this process in the first half of the year, this is swap as agreeing the details on the fiscal compact, what also is important whether or not the EFSF gets run alongside the ESM, I think that will happen as well so there is a series of things that need to happen mostly actually in the first half of the year. I think by the end of the first half of the year, we will probably be out to look over and say that progress has been made and we are over the worse of this crisis in terms of at least of agreeing of what needs to be done, the future of course will than be about implementation.

Q: We have had pretty powerful rallies across the world fed of course by the LTRO and the moves by the ECB. Does that liquidity still seem abundant? Do you think we can expect more from that front?

A: Yes I think the view that we took really at the end of the last year was that there was too much negativity in the markets and the price and so there was a prospect of the things, of the risk assets bouncing. I have to say I didn't expect such an aggressive bounce in January but it's in line with that thinking that markets had got too overly concerned about some of the risks and the valuations certainly looked attractive than I think even with the bounce, so as valuations in many of the emerging equity markets for example in some of the corporate bond market, in some of the currencies... We think there is still value despite the fact that the assets prices have moved higher in the last few weeks.

Q: How are you calling it for the first half of the year in that case, for instance, do you see the current rally extending itself?

A: We think there is more left to this rally. One of the things seems clear to me that many investors were not positioned for this rally, so they have missed the rally and generally speaking what happens in that situation is people look at market performance, they look at what they have seen in newspapers, TV etc and then they look at their own portfolios and realize actually that they have missed it and generally speaking what happens in that situation is that money gets sucked into the markets off the sidelines. People have been in cash, I think there is also increasingly a recognition that, as I said earlier there was too much negative news in the price, too much negativity at the end of last year, the world is not in our view falling apart, there isn't a solution which painfully slowly admittedly, but nonetheless is emerging for the eurozone crisis. I believe that the valuations that we still have look very attractive in many cases anyway, on a medium term to long term basis. So yes I think there is further to go with this rally.

Q: What about emerging markets like India which have already rallied 15-20% in dollar terms?

A: If you look at valuations, EMs generally sold off more than developed markets (DM) last year on DM concerns. So in a sense that the market action then did not reflect the underlying fundamentals. We also saw in many cases including in India, also in markets like Turkey was a substantial sell off in the currency. So from the point of view of the foreign investor that's made the entry point into Indian equities, into other EM equities even more attractive. But I think one needs to be careful as to the sectors where there is value. We in terms of the funds that we run in India we like discretionary consumer stocks. We think the consumption story in India is a very good one, the entry points there combined with the currency being weaker than it's been for a long time. We think that makes it attractive. So I would say yes add to positions but look for where the value is rather than just buying the market as a whole.

Q: The us markets, how have you read both the data and the performance that's been coming through from there?

A: Certainly what's heartening in particular is that the employment data finally has started to improve. For a very long time the unemployment was stubbornly high in spite of massive fiscal and monetary stimulus. Yes, the US data has got a bit better, but the other aspect here is how the data comes through relative to what people are expecting, that's really critical for markets. It tells you what people have priced in and we think there was too much negative news priced in including for the US at the end of last year and in fact the data has been surprising, positively its been better than people expected, and that's important if that can be sustained then that's another leg that keeps this rally on track.

My view is that the US certainly is going to avoid a double dip recession, but I am not looking for stellar growth there. I think its going to be relatively low growth in relation to what we have seen in the past, but nonetheless probably slightly better or certainly in line anyway with what people are expecting and that's fundamentally different from what was happening when the markets were selling off so aggressively last year. The data was coming in much weaker than people were hoping for and expecting.