Tough ride for Asian mkts ahead: Soc Gen Sec

Excerpts from Bazaar on CNBC-TV18 Watch the full show » 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?

Kirby Daley , VP - Capital Introductions Asia, Fimat Division at Societe Generale Securities , sees a tough ride for Asian markets for the rest of the year. He would not go long on the Nifty, but would buy individual stocks.

He doesn't expect big money flows into India, but doesn't see a quick exit either.

He said the US jobs data is not encouraging for Asia and the US may be in for real trouble; Fed may be unable to rescue it.

Excerpts from CNBC-TV18's exclusive interview with Kirby Daley:

Q: What you make of the last couple of days in the Asian space and whether you expect to see a bit more of a pullback there?

A: The last couple of days have been spent tracking what's happening in the US again; it goes a long way to take away the arguments of anyone saying that there is decoupling across the Asian region. Markets and economies are still being driven by what's happening in US due to the large consumer demand. I think there was some expectation that the employment numbers in the US on Friday were going to give a boost to Asian markets today. But when you break them down and dig deeply into the numbers it doesn't bode well from employment perspective, which is one of the pillars that the bulls have been depending on in the US.

So the effect on Asia should not be positive; it hasn't been today; we will have to see how the US comes out tomorrow morning and I don't expect to see a quick return to the upside in the US.

I think things are starting to settle in over there, the credit problems are coming back again and are going to be long lasting and on the housing issue, we are in some real trouble there and the Fed is not going to be able to rescue the economy and certainly not save the consumer from stopping to spend. That's going to have a direct effect on Asia.

Q: Where does India fit into that picture? Do you think we might get some more money inflows? And do you see that anecdotally in the past few weeks?

A: We have seen since the trouble started to become evident, these problems started couple of years ago. We saw a lot of run to, flight to quality into emerging markets, that's no secret. We saw a lot of money looking for homes in China and India and other emerging markets, because the expectation was that they would outperform what was going to be a slower US growth pattern.

I think that we have seen the bulk of that quick inflow come in; I don't expect it to keep coming at these levels into the Indian market or rather emerging markets. It is not going to rush out until there is reason to do so and I don't think the downside in the US is going to manifest itself in such a way that we will see a quick exit from emerging markets.

But I don't think the picture is going to be very pretty in the US in coming months. That is going to cause risk aversion to come back, so there will probably be some volatility and it doesn't mean that the climb is going to start, but the climb is not going to be as steep in emerging markets, including India, as it has been over the last couple of months.

Q: You have a good sense of how the hedge funds have read the recent P-Note declarations or recommendations. What have they made of it and do you think there is going to be an increase in registrations or might they avoid India for a while?

A: I think everyone is investigating what their options are right now and no one can argue with what has been done. Obviously, you need to keep control of the kind of money coming into your economy, you need to make sure you know who it's coming from. Also, with a rush of funds coming in, the effects on the currency and on the economy can be quite destabilising, so I don't think there is much argument with what Sebi is doing here.

How each individual hedge fund or a lot of the investors are going to react. Well they may take a look at what's happening and see what the registration process is, I think what's you are going to have is larger investors likely going through the process fairly quickly one that really want to have exposure to India, but there are lot of unknowns out there.

India is going to remain on global investors mind, it's secured its place there and it's not a flash in the pan. So that's going to force the registration option to be looked at closely. You can't really have a pan-Asian investment portfolio without India being a part of it, so there is going to be some middle ground found here and hopefully Sebi follows through with its plans to fast track a lot of the registrations and make it easier for people to legally enter into the market.

Q: What's your general feeling about Asian markets for this quarter from here? Seasonally, November to January is not such a bad time for flows and performance, or do you expect this time to be slightly different?

A: I do expect it to be different from the standpoint that this is the time to see things start to come to the forefront about the troubles in the US. And the reason I keep going back to that is because there has been no decoupling of Asia from the US, even China has not decoupled.

And the worry for India, which is less export dependent as we all know is just that in rapid run ups of stock markets, a lot of the wealth creation will go into fueling domestic demand and get that going, like we are seeing in China.

If it's still in a nascent stage and if it's not given time to fully develop and the markets do correct and I am speaking really more of China than India, but both markets are at a risk of a correction at some point. If the catalyst for that is realization, the credit troubles globally and the housing trouble in the US are really going to have an impact on the domestic demand and the domestic development of the economies in both China and India.

That will simply slow things down and slow the growth down of the companies that they were investing in and maybe have investors take a bit of breather and reassess risk. Specifically in India we have had a big run-up in the index and pretty much all stocks have benefited from that.

Now we really have to take step back and look inside and start to pick out individual companies from this point on. I don't think it's going to be as easy a ride upward from here for the rest of Asia. I certainly don't think that from here to the end of year, it's going to be an easy ride; I think the spillover from the US is going to become very evident going forward.

Q: You wouldn't have a long position on the Nifty right now, would you?

A: I would not necessarily have a long position on the Nifty. But I would drill down and pick out individual stocks, especially in the domestic issues; issues that will benefit from the demand that is being created, by the wealth being created and especially, an infrastructure play. So I wouldn't necessarily go broad-long, I would definitely look at special construction and infrastructure plays, I think those are going to be strong, going forward, without a doubt.

Q: What about some of the oil and energy stocks listed in India, anything that you are picking up by way of institutional interest in them?

A: Unfortunately I don't follow those issues directly, but for energy, for the commodity sector globally and the energy sector specifically - there is a lot of talk now that with the run-up in commodities, we have seen emerging markets and commodities have major gains in the last couple of months. There the analysts are very split on whether they are going to be in for a near-term correction in prices.

But if there is a correction in the prices, especially in oil, there will be the knock on effect on the energy issues, in general, there will be some value created and a chance to get back into these stocks at better levels. Because there is no doubt in my mind that the energy market is moving one way and over this, even the medium-term and that is up. But in any market that goes up as quickly as the energy has, we are in danger of a short-term correction at which time those stocks will become much more profitable.