Outlook bleak for equities; see over 5-10% cuts: IG Markets

According to him, it is easier to tackle an economic problem as things can be patched up with ECB funding. “But when it comes to political issues, it is hard to do with these things because they are deep into the nation when it comes to politicians, governments and public unrest,” he said.

Though it is still early to determine the effect these events will have on sentiment, Harper expects to see cuts of over 5-10% across global equities.

Below is an edited transcript of his interview with Sonia Shenoy and Sumaira Abidi. Also watch the accompanying video.

Q: Debt fears were very much back on the table as far as Europe is concerned and there is now some political uncertainty that is added to it. What are you making of all of this uncertainty and in the short-term what are you reading for global markets?

A: I think the European issue has taken a fresh turn. Obviously we have had the economic worries, which have been on for quite a while, but now there is political resistance also. This is obviously more complicated when it comes to the economy because for many things you can patch things off with ECB funding. But when it comes to political issues, it is hard to do with these things because they are deep into the nation when it comes to politicians, governments and public unrest.

So I think this makes things very messy at the moment. We have got France and Netherland having a crisis of confidence amongst themselves and I think that is dragging global markets. If you look at Asian markets today, look at what happened in the US as well, so the political angle is definitely not a good sign of a recovery.

Q: In effect, what could it translate to in terms of a cut for global equity markets? Do you think it would limit itself to 5-10% or could it be more than that?

A: It could be more. I think it’ still s early days to say what it has done for sentiment. It has obviously dented things this week, and as we end Q2, I think things have been trading pretty sideways here. We definitely had a breather and we are seeing some retreat as well, so I think the markets aren’t in a good state.

We have got no will for the driving force from China, from the US or Europe at the moment and Asia is obviously having a lot of downside risk from these major trading partners. So at the moment, things are looking quite bleak this week and for the weeks ahead.