Headwinds of growth, inflation to ease off: DMG & Partners

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Asia is trading with a negative bias; most markets are getting a little choppy this morning. Gabriel Yap , Senior Dealing Director of DMG & Partners while speaking to CNBC-TV18 said he expects the headwinds of earnings, growth and inflation to ease of in the next three months.

He said oil would settle at a much higher average than last yearbut woudl definitely pull back and that prices of range commodities like rice, cotton have also pulled back.

Excerpts from CNBC-TV18's exclusive interview with Gabriel Yap:

Q: MSCI  Asia Pacific Index has corrected about 24% this year. What is preventing some sort of value buying; currently earnings, inflation and growth are these three headwinds still too strong to prevent any value buying?

A: These three headwinds have been very much in vogue since the beginning of the year and they have actually got worse in the month of March. But in the next three months, I would actually see some of this easing off. For example oil which has actually been the main culprit, the consensus in the market is that that oil will settle at much higher average than that of last year but definitely there will be a pull back, whether it is going to happen next week or next month from the current USD 135/bbl level may be to USD120/bbl level towards the end of the year is anybody's guess.

More importantly for Asia the other range commodities for example like rice, cotton; prices of these pulled back since they had jumped so much. So I would expect this to headwinds to ease off as we sail towards the end of the year.

Q: Which market do you have the maximum exposure to in the entire Asian pack?

A: Generally we are quite light on most markets. I have been advising clients that this is an opportune time to slowly come back. I don't expect the markets to recover in a sharp manner before the end of the year but I would expect the point of maximum pessimism which characterized the bottoms in most markets as we had seen since 1960 for which we have had five US led recession leading to market bottoms in Asia.

Take for example Asia right now is close to 50-60% correction from the highs of October last year, this is quite reminiscence of what we saw during the 1997 Asian crisis, where in the last 30 years for Asia, the Asian markets fell by as much as 60%. On an average most Asian markets fell by about 37% in the average of the last six US led recession and its impact on Asia.

Q: So which market do you think may lead that bout of recovery?

A: I would expect that the key markets where there is growth in terms of earnings momentum, as well as corporate ability to have EPS growth would be the high beta markets, especially in China and India. Essentially these two markets have corrected very substantially, India for example; it has come off from 32 times P/E to 16 times P/E within 10 months.

 In the Chinese market under the H-Shares that are traded in Hong Kong has come down from 29 times P/E to 15 times P/E. On a 10 year average basically this current valuations are below the 10 year averages.