Risk lowered but, Europe not out of woods yet: JPMorgan

This sent a cheer across global markets with S&P 500 jumping to a more than four-year high, European markets witnessing smart moves and Asian markets rising today.

Richard Titherington of JPMorgan Asset Management told CNBC-TV18 that Draghi’s move has eased the risk in the European situation at least for the near term.

However, he cautions that the fundamental problem of lack of growth still remains in Europe. “The markets are reacting to the fact that risk has been lessened overall, but we are not out of the woods and clearly the eurozone crisis is not over yet,” he explained.

Also, ECB cutting growth forecasts for 2013 may limit the upside in risky assets like commodities going ahead, he said.

The next key event to watch out for would be the decision of the German Constitutional Court next week. If the court rules adversely then that would come as a negative surprise to markets.

Meanwhile, JP Morgan is increasing their exposure to Indian equities . "Whilst there is obviously a lot of uncertainty both in the global environment and domestically in India, valuations are increasingly attractive. I am looking to add to my exposure to Indian equities at the moment, he added.

Below is the edited transcript of Titherington’s interview with CNBC-TV18.

Q: What did you make of what Draghi had to say at the press conference yesterday? Were the bond buying program modalities along your expectations?

A: Earlier in the summer Mr. Draghi raised expectations and there was a lot of concern before today that the people will be disappointed, but as you can see from the market reaction he at least matched expectations. In the near term at least he has reduced the risk in the European situation, which is really the most that we can expect from him.

Q: Do you expect the bond purchase program to get operational immediately and without any kind of hitch or obstacle from the German authorities?

A: The key date is the decision of the German Constitutional Court next week. We can’t assume that everything is going to go ahead until that decision is out of the way. Whilst we should expect the European Central Bank (ECB) to act pretty rapidly, you do need to get the approval of the German Constitutional Court. So that’s really a key date to look forward to.

Q: If the court rules adversely then what do you think the reaction would be?

A: I think that would be a negative surprise to markets. Investors are expecting the ECB to be able to step in to support European bond markets. So that would be negative. If that were to happen, you would need further discussions between the politicians and the ECB and some outside support from the International Monetary Fund (IMF).

Q: Where does all this leave global markets for now? Do you see the risk on rally continuing now with greater momentum after hearing out Draghi?

A: This announcement underpins the European situation. It doesn’t solve the fundamental problem and that’s one of lack of growth. The markets are reacting to the fact that risk has been lessened overall, but we are not out of the woods and clearly the eurozone crisis is not over yet.