As Europe remains the key concern globally, Steve Brice, Chief Investment Strategist, Standard Chartered Bank disclosed that the investment bank is underweight European equities. However, he is overweight on global counterparts.
Expressing his view on India, Brice said that he expects 25 bps cut in repo rate in the RBI policy meeting tomorrow . He added that the investment bank is looking to up India’s rating from neutral to overweight as soon as macro economic situation improves.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Has risk aversion contracted significantly over the course of the last week?
A: Everybody is very keen to watch developments out of Europe in particular. Economic data in the US has become more fragile, China continues to disappoint on the downside; we saw the GDP data and trade data as well last week. I think Europe is the main concern for people.
The good news from that front is while we are seeing government bond yields increase, which is a sign of increasing sovereign debt stress, European banks are not seeing liquidity challenges at all. This is probably what the Long-term Refinancing Operation (LTRO) was effectively aimed at.
We will watch Europe closely but it is unlikely that it has become a global negative, it’s more likely to be a local negative. So we are underweight European equities but overweight global equities as a whole.
Q: So you don’t think there is likelihood of a 10-15% kind of a big correction in global equities over the next month?
A: Before we saw this correction, we expected to see a 3-5% downside. Global stock markets are down 4.5% from their peaks. So we could see short-term fragility. Technicals suggest that we could see another 4-5% from here in theory but there is a lot of cash on the sidelines. So we are generally feeling that things are playing out as we are expecting.
There is always going to be some sort of correction at some point. We are up nearly 8% so far this year and that is still a positive environment. We don’t think there will be huge drops from here. We are advising our clients to increase their equity holdings on weakness. So we believe equities are still undervalued both from a historical perspective and also against government bond markets. Therefore, if we see any short-term volatility then we would average into equities.
Q: What is the mood on India - have the recent events on taxing global investors etc taken a little bit of sheen off the story?
A; People have been quite bearish on India for some time; we saw that through the stock market performance last year. Obviously, there was a very strong start to the year and then it faded from there. From that perspective, people are still feeling a little big cautious. They are not willing to jump in. The Central Bank meeting this week will be important. We are expecting a 25 basis point cut in repo rate. We are looking for an opportunity to revise our weight on Indian equities with currently neutral within a global framework.
Our next move is to be an overweight. But we still fear we have got some time to play this out; still some negative news. We have the election cycle as well. So we can be fairly patient but the next move, we do believe, would be an upgrade rather than a downgrade to our outlook.
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