No indications of US housing market improving: HSBC

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Aug 15, a day of reckoning for EMs too Expect to see a Black Friday today What triggered the mayhem in financial mkts? ‘No single factor behind indices movements’ Will the markets remain in limbo for a while? 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 Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Fredrick Neumann , Economist - Asia Pacific, HSBC said that the sub prime issues are likely to remain for some time and that the uncertainty over the extent of the sub prime issue is a major concern.

 

"There are no indications of the US housing market improving. The state of the housing market and banks getting affected are two major issues," he said. Neumann added that markets should address the US state housing state, which is not improving.

 

Neumann said that Asian EMs, especially India fundamentals, remain strong and that they are confident about growth outlook. "It will take time for confidence to return in Asia," he added.

 

About the yen, he said that though its volatility will continue, it will appreciate in the long term on reducing interest rate differential.

 

Excerpts from CNBC-TV18's exclusive interview with Fredrick Neumann:

 

Q: What's your assessment of the situation? How will it eventually turnout to be?

 

A: I think the problem here is uncertainty and the subprime issues are likely to remain in the news for quite sometime, but we really do not know the extent of the subprime issues' exact implications. Nobody really knows who is affected and to what degree. It's not so much subprime as much as how it is going to play out in the financial markets. That uncertainty is going to stay with us for quite sometime.

 

Q: How do you expect it to play out over the next few weeks and what kind of information do you think the market should look out for to understand what's happening?

 

A: I think there are two issues here; one is the state of the housing market in the US and the lack of indication on its improvment in any sense, from where we'll have negative news for the next several months. The other issue is how many banks are affected and if you look back few days, you can see that one or two banks somewhere in the world are affected. And I would expect that to continue, not in a systemic sense, but it is going to keep the uncertainty quite elevated for the next several months.

 

Q: Specifically, for emerging markets, how do you think it's going to shape up?

 

A: It's interesting for Asian emerging markets, fundamentals are very sound across Asia, including India. We remain quite confident about the growth outlook. In fact, most of the analysts have revised upward growth forecast in the last few months. The problem is financial market contagion from the US and I would expect financial markets to remain volatile for quite sometime, even though fundamentally nothing has changed in Asia. You could argue that if fundamentally nothing has changed, markets will automatically recover, but I think it will take sometime until the confidence returns in Asia and then we'll see markets taking a leap upwards.

 

Q: In the light of this kind of volatility and the fact that the investors would be quite skittish now, what is your expectation on the yen carry trade and on the yen-dollar, per se?

 

A: Structurally, the yen carry trade volatility is going to stay with us. The yen is very sensitive to changes in investor sentiment across the world, so volatility here to stay with us. Structurally, however, ultimately the yen will continue to appreciate, but this is a long-term view because interest rates in Japan are going up and in the US they are likely to come down, reducing interest rate differential. In these times of uncertainty, I would expect lot of volatility, but structurally, the yen will appreciate.