Investor confidence unlikely to improve: LGT Bank

Excerpts from Power Breakfast on CNBC-TV18 Watch the full show » RELATED NEWS See integrated rate cuts by world central bks: Asia Pac AMC Downside risks are hard to predict: Bank Julius Baer Not pulling out of Asian markets: Tyche Group ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets BSE | NSE 10/02/12

Asian markets have been falling for the fifth consecutive day led by financial and resource companies on concerns that more banks will fail worldwide as credit crisis deepens. Benjamin Pedley, Exec Director, Investment Strategist at LGT Bank believes that investor confidence and confidence among financial institutions about counterparty risk is unlikely to improve in the near-term.

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

Q: Asian stocks decline for the fifth day on growth and profit concerns. What do we do now -again more in the red where is the bottom coming?

A: It doesn't look like there is going to be much respite in the near-term. What I would say is that the Federal Reserve's decision last night to purchase Commercial Paper is another step along with the USD 700 billion bailout plan. It's a step in the right direction and none of these measures individually is going to solve the problem but it is certainly going to help the problem.

The problem now is one of confidence among investors and it is one about confidence among financial institutions about counterparty risk. I think those two factors are probably unlikely to improve in the near-term. I would be saying declines to still sell on rallies because I do believe that while the credit problems persist, it is impossible for equity markets to do anything other than to go down or at the very best embark on a short covering relief rally.

But one has to bear in mind the weakness in equity market comes against the backdrop of almost a global ban on short selling. So if and when those global bans are lifted one can only surmise what the markets might do.

Q: Now the phenomenon is Central Banks across the globe are cutting interest rates, do you think that may temporarily solve the problem because the problem really is where is the money even if the interest rates are being cut across?

A: The problem is not about interest rates being too high, the problem is about the inter bank rate being too high. Will it do any harm in the near-term?- No, it won't do any harm in the near-term that is what the Reserve Bank of Australia this week surprised the market with a 100 basis points rate cut to 6% in its cash rate. I think it's not beyond the realms that we will see at least 50 basis points rates cut, may be even 75 basis points from the Federal Reserve as early as this week. And I think it is almost inevitable that the Bank of England will cut and I think the European Central Bank (ECB) must be pressured into lowering interest rates.

I think we might even get coordinated rate cut from the global Central Banks in the next week or so. It may not do a huge amount to solve the problem but it certainly won't do any harm to try and restore some confidence in these markets.