Mkt sentiment intact; equities to march ahead: Mark Konyn

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Even as the world awaits the verdict on Greece, which may cause a short-term pullback across equities, independent strategist Mark Konyn believes that there is still a lot of steam left in the markets.

Konyn added that there is more money flowing into emerging markets. There is a lot of momentum since the beginning of this year, which expresses itself into fund flows. However, he feels that India may lag behind on account of macro economic concerns. On a sector-specific note, he is positive on infrastructure.
 
Below is an edited transcript of his interview. Also watch the accompanying video.

Q: Earlier on, you had mentioned that you expect this rally to continue but is it getting to a stage where enough is enough, do you think it will start meeting with some kind of obstacles even if the Greek problem was resolved?

A: There is no doubt as news comes out of Greece, it will cause a short-term pullback. But I don't think we are at that point yet where this rally has run out of leg, so there is still more good news, news that is perceived to be positive by markets will drive sentiment for long. As I commented before, investors are looking to hang on the back of any good news and we have seen the job market improve in the United States.

We haven't yet seen the income growth accompanied that flow through the consumption growth. But there are expectations that it will and I think investors are starting to discount that and as a result sentiment globally is improving. So, in spite of this, there seems to be a little bit of cautiousness at the final stage of the Greek agreement, no doubt in my mind, at least the markets will continue to move forward.

Q: What about the potential good news combination - Greece is muddling through with some bit of political agreement and the ECB is pumping in almost 1 trillion euro, we understand, in the next tranche of LTRO. Are you looking at some significant upside if this combination happens?

A: Certainly, the LTRO has been the saviour, the ECB taking the initiative, which has alleviated the concerns coming into the end of last year and beginning of this year in terms of liquidity crises in the banking system. It has allowed the sovereign debt problem across the continent to be mitigated to a large extent, and largely indebted nations, economies that have been able to come to the market and raise money at better rates than what otherwise has been the case.

So, the effect of the LTRO and the target too for that matter has been positively received by market and it has been the saviour. We have got the ECB meeting coming up with statements; like today, we have the Bank of England's statement. I think we are looking at any real surprise there probably we will see some more stimulus coming out of the Bank of England and rates from both central banks being kept as they are without any change is the most likely scenario.

So stimulus is still forthcoming and that's what keeping things afloat. If you look at Spain for e.g. the economy is in a shocking state even though we have seen austerity measures put in place. Even though the government is benefited from LTRO and it has been able to come to the market with beneficial or better borrowing cost, it has been the case that they lost competition or they have been less competitive than they were previously, they have lost out to a competitor and the economy is set slow even further. So, by no means, it is out of the woods but as I say in short-term, it's good news with the stimulus and investors are looking for ways to put more risk in their portfolios.

Q: If there is still some upside for the markets, do you recommend investors to get into markets like India at current levels and what's the upside what you would give?

A: Certainly, there is more money flowing into emerging markets. As we saw in January, we had around USD 11 billion flow into emerging market funds - that's the largest flow at the beginning of the calendar year since 2006. So there is a lot of momentum that's been building coming into the year which expresses itself into fund flows and I think India is benefiting from that. But as I had commented last time, India will lag behind a little bit because there are concerns with macro conditions. Nevertheless, India will benefit when those sectors, which are perceived to be better off and better positioned are likely to take the lead.

Looking through sectors, I have been a little bit more positive on infrastructure as an investment; it will be forthcoming, as a way to alleviate some of the problems as the monetary tightening that we have seen in place for sometime now which is unlikely to ease significantly through the first half of the year. So, those sectors that are benefiting really from fiscal initiatives will do better.

Q: What would be your top three asset classes?

A: I think still equities, for sure, recognizing that there will be bouts of confidence, the pullback and there will be those flows through to high quality assets as perceived by investors. If you look within equities, it's going to be emerging markets, which get the lion's share of that incremental allocation, making up for the withdrawal from many emerging regions in the second half of last year.