Macquarie -ve on export-related sectors, realty

Tim Rocks, Equity Strategist, Macquarie, said valuations are irrelevant when high risk of bankruptcy exists. We are negative on export related sectors, construction, and real estate.
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Dec 13, 2008, 12.16 PM | Source: CNBC-TV18

Macquarie -ve on export-related sectors, realty

Tim Rocks, Equity Strategist, Macquarie, said valuations are irrelevant when high risk of bankruptcy exists. "We are negative on export related sectors, construction, and real estate."

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Macquarie -ve on export-related sectors, realty

Tim Rocks, Equity Strategist, Macquarie, said valuations are irrelevant when high risk of bankruptcy exists. "We are negative on export related sectors, construction, and real estate."

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Tim Rocks, Equity Strategist, Macquarie

Tim Rocks, Equity Strategist, Macquarie, said valuations are irrelevant when high risk of bankruptcy exists. "We are negative on export related sectors, construction, and real estate."

 

Speaking on India, Rocks said India is looking interesting. "We are likely to increase allocation going forward. However, the earnings season in January is crucial for equities."

 

Here is a verbatim transcript of the exclusive interview with Tim Rocks on CNBC-TV18. Also see the accompanying video.

 

Q: Does it seem like that year-end rally we were expecting is stalling or do you think markets might have a bit of a pull up before we get into next year?

 

A: I think the whole thing is stalling now because this rally is been built on hope rather than any fundamental change. Itís not clear to me that there is anything neither has any economist got any better cues. In fact, the two major data released over the past week have been shocking, i.e. the non-farm payrolls out of the US and the Chinese export numbers. So, there is no strong foundation for this rally at all.

 

Our main concern is that once we hit Q1 next year, the reporting season is just going to be truly awful, not just on the earnings front. The big question will be what has happened to the balance sheets globally, how much cash has been eaten up in inventory accumulation? How much revenue is not actually going to cash flows but gone to account receivables and are not going to be received. So, these factors are difficult to quantify and I think once they are quantified, Q1 will still be disappointing.

 

Q: The hope was this was the rally based on value because people saw value at these levels and which means that people were hoping that everything was factored in. Could the worst of results be factored in, so you think things could be even worse than what the market expects?

 

A: My concerns are that these financial problems have not transpired to the real economy. As it transpires to the real economy, companies will go under. With high risk of bankruptcy, valuations become irrelevant, until we really get a hand on what damage has been done to the balance sheet of corporate to survive fundamentally. But we cannot have a lot of confidence in a valuation number. I think once we get through Q1 and have understood this a bit more and valuations become more relevant, you may see the markets rally from Q2 onwards. 

 

Q: You do not think there are any pockets of investment left then either in terms of sectors?

 

A: There certainly sectors where the bankruptcy solvency issue are less important. I would say the most problematic ones are anything thatís export related, anything that has to do with construction, whether its real estate or industrial contracting that sort of thing. Other sectors you can be comfortable with, but also have got to be very cautious.

 

Q: Does that make India relatively a safer bet it being not so export oriented? Its not so largely dependent on real estate of course, itís gone up a lot in the past but not as large as other parts of Asia.

 

A: I think thatís right. I think now that India has gone through such a correction and you have the monetary authorities so aggressive there and trying to address the individual problems there, it does look a lot more interesting than it has for sometime. We are likely to increase our allocation of India going forward.

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