See sell-off by Q4 FY09: Jim Walker

Jim Walker, MD, Asianomics expects the economic news to get worse and does not see the markets sustaining its gains. The markets are likely to see a sell-off before a good buying opportunity comes.
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Dec 08, 2008, 09.45 PM | Source: CNBC-TV18

See sell-off by Q4 FY09: Jim Walker

Jim Walker, MD, Asianomics expects the economic news to get worse and does not see the markets sustaining its gains. "The markets are likely to see a sell-off before a good buying opportunity comes."

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See sell-off by Q4 FY09: Jim Walker

Jim Walker, MD, Asianomics expects the economic news to get worse and does not see the markets sustaining its gains. "The markets are likely to see a sell-off before a good buying opportunity comes."

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Founder & MD, Asianomics |

Jim Walker, MD, Asianomics expects the economic news to get worse and does not see the markets sustaining its gains.  "The markets are likely to see a sell-off before a good buying opportunity comes." However, he feels the worst will be over by 2009-end and he expects better times from 2010 onwards.

 

Walker said the US and UK economies are likely to see negative economic growth and estimates Indiaís GDP at 3-5% and China's growth to slow down to 0-4%. "India will be the fastest growing economy in the world next year with a GDP in the range of 3-5%. Although it sounds very slow by recent standards, it will actually be an excellent performance in the kind of global economy that we are looking at. India will be substantial out performer."

 Here is a verbatim transcript of the exclusive interview with Jim Walker on CNBC-TV18. Also watch the accompanying video.

 

Q: What is your sense, last few days and weeks we have seen a bit of pullback in global equities but is the economic news getting anywhere better?

A: No, I think the economic news is getting worse. As good news comes in either in the form of lower interest rates or government stimulus packages, equity markets anticipate that and start moving up. But I think for most of them the upward move is not going to be sustained in the course of the next 6-8 weeks, as the economic news gets actually worse.

 

The market will see a sell-off when the Q4 FY09 earnings start to come through and people realize how bad things are. That would be the point at which people should buy.

 

Q: How bad do you think it will get for economies both in the developed and in the Asia space how much of de-growth do you expect to see?

A: We see an economic growth range of (minus) -2.5 to -5% in the US, (minus) -2 to -5% in the UK and Europe may see a de-growth to around zero to -2%, Japan -1%, and most of Asia in negative territory as well.

 

For China our base case is zero to 4%. India will be the fastest growing economy in the world next year with a GDP in the range of 3-5%. Although it sounds very slow by recent standards, it will actually be an excellent performance in the kind of global economy that we are looking at.

 

So very low growth rates, I think global growth rates are certainly at about 2% or below and India a substantial out performer.

 

Q: What are your thoughts on China and how are things shaping up there? What is the extent of downside risk you see to the economic growth in China and do you think they could surprise the world with some moves on their currency which is being spoken about today?

A: The base case that we have is for a zero to 4% GDP growth in China and probably at the lower end of that. We also have 30% probability of a negative GDP number for China next year.

 

The problem over there is two fold; first, the export exposure of the Chinese economy and secondly the investment environment there as operated over the course of the last six years. China has misplaced capital in a pretty dreadful way and very unlike India in that respect. What that usually does is it builds up bad investments in the capital and capital structure. So we are looking for that to be shaken out of the Chinese economy next year and that shake out will take economic growth very much to zero.

 

If that is the case, then we should really expect China to pull all the levers that are available, they will be cutting interest rates, their government will be spending more money and will be depreciating the currency. That has always been the modus operandi in the past in order to devalue the currency in any weak economic environment.

 

I donít think anything has changed for China. So our forecast for Renminbi is that it will be anywhere between 7.5 and 8 by the end of next year which is around 15-20% devaluation, depreciation in the currency.

 

Q: The other big fear we are living with at the end of this year is how long this entire recessionary phase is going to last. Do you believe that by the end of next year we might be somewhere at the cusp of a revival or do you think this one is going to be longer and deeper than most are expecting?

A: I think itís pretty close to the end of next year. The signaling mechanism that we used for looking into the recession or for signaling the recession was the yield curve in the US. It turned out to be an excellent indicator again moving into this recession.

 

At the moment what it is signaling is that certainly by mid 2010 there will be some recovery in the US economy, maybe a relatively weak one but certainly a recovery. So probably we will have seen the worst by the end of 2009.

 

I think 2009 will be very bad but the prospects for 2010 are looking increasingly good. The US is the first into this recession, dated back to December 2007 and it will be the first to come out about early-2010, mid-2010.

 

 

This story will be updated soon. Please check it in a while.

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