Long-term Asian mkt fundamentals sound: HSBC

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Michael Preiss of HSBC says that fundamentals of Asian markets look sound longer-term. According to him, the real issue is not so much the equity markets but dollar weakness going forward.

He added that there was just too much credit creation and hence there was a credit squeeze.

Excerpts from CNBC-TV18's exclusive interview with Michael Preiss:

Q: What have you been hearing by way of the kind of turbulence that is prevailing in Europe on account of the subprime problem there and how much of an impact do you see it might have going forward in the coming week as well?

A: In all probability, there still will be a lot of volatility. This is just the tip of the iceberg and the real question is whether the American Central Bank with Bernanke, and whether the subprime issue is contained or not. For the time being it looks it is spreading. So, a lot of people are naturally very nervous. So, basically there is a lot of selling coming in.

But on the other hand, people who are buying are pointing out that global growth is very strong, 5.5% and fundamentally in a lot of economies there is nothing wrong. It is just the credit system in the US and hence the real issue is not so much the equity market. The real issue is dollar weakness going forward.

Q: What about Asia and the markets in this region particularly because there has been much talk about how probably we might be insulated or in a better situation than the US and the UK?

A: Most probably yes but the real question is not the economy. We are debating this whether Asia could decouple from the western market and most probably it can. But for the short-term of course the impact will still be felt. I think in the longer term the Asian markets look fundamentally very sound. It is nothing about economic fundamentals. It is just about credit squeeze in the global credit markets.

Q: What are you sensing because 15th August for the hedge fund world seems to be a rather crucial day? Are you sensing a lot of pressure?

A: Yes, there is a lot of pressure because basically at the moment there is a lot of fear in the market and a lot of people are fearful of how to value some of these troubling insecurities when nobody knows where the market is. So, that is why the market is basically frozen.

This why the ECB yesterday stepped in to provide liquidity to the system. This is not a question of fundamentals, it is just a question of credit squeeze and fighting quality. And this is where I think the ECB took the right decision. Economically and fundamentally everything is okay with the global economy. It is just too much credit creation and hence the credit squeeze.