India can sustain economic growth at current levels: JF AMC

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David Hsu, Chief Executive Of Asia Pacific (Ex-Japan) of JF Asset Management says that strong period in emerging markets will continue to correct.

According to him, Yen weakness suggests resumption of carry trade though liquidity is still strong in China. He believes that Chinese inflation over 3% was what led to the over reaction.

David Hsu says that India can sustain economic growth at current level though India needs to improve infrastructure to match China's GDP growth.

Excerpts from the exclusive interview with David Hsu:

Q: What is your sense of how the emerging markets in Asia are poised right now after the pullback, which has taken most markets to new highs again?

A: Emerging markets will continue to grow. Sometimes emerging markets have seen corrections but the future growth will come from there.  

Q: How is the liquidity picture right now? In February-March we saw a lot of risk aversion; people were pulling out of emerging markets a bit. Has the mood changed and are the liquidity flows gushing in again?

A: In February, when people pulled out the liquidity from the emerging market they realized that it is a good opportunity to invest in the emerging market. That is the reason the money was back into the emerging market again. So we have seen in the last two months that most markets were back to the peak and almost everywhere emerging markets were on a high.

Q: What is the situation with the yen carry trade now, with the yen hovering around 118-119 to the dollar? Are you seeing strong yen carry trades in the region again?

A: I think weakness in the yen is like a mystery because if you compare it with the euro and the sterling there is no reason for it to be weak. So a reasonable explanation is the carry trade and in the current situation, the yen weakness should concern the Japanese Government. I think this situation - this carry trade cannot last forever and when it turns, the yen's position will change overnight. So that is definitely a trend, which is worth observing and  watching carefully.

Q: Do you see that as a risk now - any potential unwinding of the yen carry trade - because of the strengthening of the currency there? Is there a risk according to you?

A: There is no proper information but people predict that the allotment is through the hedge funds. If one day the situation changes, then people need to cover their position on yen then probably we will see another liquidity mode.

Q: How are you reading the cues from China? Yesterday all the markets were quite worried that the GDP growth number was so strong that they believe that China's monetary authorities will tighten once again. Are you worried on that score or do you think those worries are overdone?

A: You are absolutely right. China market was down 4.5% yesterday because the growth rate is very high and also the inflation ratio is for the first time over 3% in the last three or four years, so people are worried that the Chinese authorities would tighten up money supply again, but people have overreacted and I think in the long run the liquidity issue will continue in China.

Q: What is your call on India now? You said all markets are at new highs; we are an exception as we have to still move about nearly 7-8% to get to new highs. Do you think you can justify that strength in India?

A: Look at the China number that was announced yesterday. There is a QoQ growth of more than 11%. India can sustain the current economic growth because India's capital market is much ahead of China's but China's infrastructure is ahead of India. So if India can improve the infrastructure, then definitely 8% economic growth is not just sustainable for India but can even can grow bigger. I think China has kept 8% growth rate for the last 15 years and I think in the past two to three years there has been a double-digit growth of 11% because they have invested in the infrastructure in the last 10-15 years. So if India can continue to invest in infrastructure from now on, I believe they too can reach the double-digit economic growth rate.

Q: In the near-term are you worried about the India market or are you bullish?

A: We are bullish and confident on the long-term. I think India will continue to grow and for a period of three to five years, when we look at the Index it is always a good time to buy.