The Indian currency, which hit a life time low of 59.93/USD recently is likely to remain under pressure in the near-term. With this weakness in rupee, the possibility of a rate cut by the Reserve Bank of India (RBI) has reduced, says Mohammed Apabhai, Asia Pacific Trading Strategies Group of Citi.
The sentiment in global market continues to remain fragile after Federal Reserve’s decision to taper quantitative easing by year end led to a bloodbath on the Wall Street.
Foreign investors are selling heavily from Exchange Traded Funds (ETFs) especially emerging market ETFs, says Mohammed Apabhai, Asia Pacific Trading Strategies Group of Citi.
According to him, the market is still trying to come to terms with Ben Bernanke’s statements and the credit and foreign exchange market are worse off than equities. Market participants sitting on huge losses due to this global carnage will use any bounce back in the market as a selling opportunity, he cautions.
Apabhai has a fairly negative outlook on India. The Indian currency, which hit a life time low of 59.93/USD recently is likely to remain under pressure in the near-term . With this weakness in rupee, the possibility of a rate cut by the Reserve Bank of India (RBI) has reduced, he added.
Below is the edited transcript of Mohammed Apabhai’s interview with CNBC-TV18
Q: What you are hearing anecdotally about the outflow situation especially from some of the emerging market (EM) Exchange Traded Funds (ETFs) and whether you think that is likely to exacerbate from here on?
A: We are seeing market stabilising at lower levels this morning. Although sentiment continues to remain fairly fragile we are seeing some fairly heavy selling continuing out of the ETF especially global emerging market ETF and Emerging Index Fund (EEM). So the selling is definitely coming from foreign investors across the region.
Today some central banks are starting to take some action - the People's Bank of China (PBOC) is injecting liquidity reportedly into the Chinese financial system, Korean regulators are also talking about taking some market stabilising measures. We have got the Bank of Japan governor also speaking today afternoon.
Upto the weekend some markets may find a little bit of a support, but sentiment is still very fragile. The market is still absorbing comments from Ben Bernanke as well as the rise in the bond yields which is unsettling everything. The credit and foreign exchange market continues to remain very jittery even more than equity markets.
Q: Do you think any pullback or stabilisation could just be a short covering move which is temporary in nature or do you think most of the pain is behind us in EM equities?
A: I still continue to believe that we are in the process of a short covering rally. The bounces that we are seeing across the region are not even taking us into positive territory. So in Hong Kong we are off the lows, we are still down 1 percent and that is the picture across the region.
Markets like Indonesia still down 2.5 percent, big foreign positions that are owned there and until you see a stabilisation in the currency, bond and credit market it does feel like there is going to remain continued outflows.
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