Mkts need to go past highs to provoke any fresh buying: NAB

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » 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

The road to Greece is paved with anything but good intentions. Facing pressure from the IMF and ECB, the Greek parliament finally approved the hugely unpopular austerity measures today.

Asian shares gained on Monday with European markets following them. A rise over the past few weeks, partly on expectations of a Greek deal, shows that most of the recent optimism was already priced in.

Nick Parsons, head of research, UK & Europe at National Australia Bank tells CNBC-TV18 that markets will now need to regain their highs and move above them if they are to witness any fresh bouts of buying. "Investors are being somewhat weary rather than standing in at current levels," he says.

Below is an edited transcript. Watch the accompanying video for more.

Q: Initially we were underperforming in Asia, considering that the markets weren't looking very excited by what they had seen from Greece. Now, as the news seems to be digested, do you think we have furthermore rally in the equity markets pending or do you think this is it in reaction to what's happening with Greece?

A: We should look at the scale of the rally that we have seen this morning. When we do so we will reflect that it's a little disappointing. Markets are up by almost 1%. In Germany, the DAX future is up 55 points, in France it's up 33, but that's less than two-thirds of the loss that we suffered on Friday. So we haven't regained all of Friday's losses nor indeed have we been able to do so in the currency market either.

On Friday morning we were trading the euro at 1.3280 against the US dollar. We sold off on Friday on the last minute nerves about a Greek package. We have rallied, but at the moment we are only trading at 1.3260. It's the case that investors are being somewhat weary rather than standing in at current levels.

I suspect we would need to see the market regain the highs and move beyond the highs in order to provoke any fresh buying from here. I don't think this is the level from which to chase it. It is one of those strange situations that investors would be happier to wait and pay a higher price rather than actually chase it just now.

Q: One keeps getting that big number of probably a trillion euro which banks might borrow from the ECB by the end of the month. Is that priced in or is that likely to give a quantum leap to this ongoing rally which perhaps has taken a breather now?

A: I think it's actually lost the power to shock. The numbers are up to a trillion and are now fully discounted by the market. Whilst it may help credit spreads to maintain their lower levels and that spread compression that we have seen over the last six or seven weeks has indeed been very, very impressive, it would help us maintain those levels but it's unlikely to fundamentally alter investors' perception of Italy, Portugal or Spain. It is the type of good news that's necessary merely for markets to hold in. I honestly think it's going to be a struggle to build on these gains at the moment.

Q: Would it be that this kind of liquidity could slosh around and push up other risk assets slightly distanced from Europe? For instance, could commodities or the emerging market rally go on?

A: The emerging market rally can go on in relative terms because that of course is where the growth is. We are talking about a slowdown in China to 8%, we are talking about a slowdown in India to 6%. It's the type of growth that Europe can only dream about. It simply doesn't happen. If we look at the selloff in those markets, both in the stock markets and the currency through the emerging market universe in the fourth quarter of last year, investors can see that is still where the value is.

I would suggest on a relative basis we are going to see outperformance by the emerging markets of their more developed counterparts. That's a trend that we carry on seeing. I am particularly heartened by the rally that we have seen in the rupee and its ability now to hold below 50 for every single trading day in the month of February. We haven't yet got down to the best levels of 48.60 which we saw on February 6 but the fact that we can hold below 50 is a sign that investors do like that market.
 
Q: Do you think Greek protests could hinder this process and keep the issue alive, given that the parliament has cleared the austerity package. Should Greece be put behind on the backburner?

A: I don't think Greece is put behind us at all. What's happened is the parliament has voted to accept it. It's fairly clear that the people are less happy with it and I don't think the reaction we have seen on the streets is going to encourage the Germans in particular to be making unconditional transfers of funds into Greece.

The very best we could hope for is that the funds went into an escrow account. The disbursement of those funds would be conditional upon ongoing targets being met and it's going to act as a drag on investor sentiment for some time to come.

The very real risk that the markets have not yet factored in is that we have elections in Greece where we have a new government returned which is actually entirely opposed to the bailout mechanism. So, all we have seen here is a temporary truce. I certainly do not believe its right for either side to declare victory. We have got a truce in hostilities that could flair up again at any moment.