Be cautious, eco vulnerable to double dip: Morgan Stanley

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The Indian markets have been seeing great volatility amid a skittish global setup. Worries about Greek sovereign debt and a potential spillover elsewhere rattled global financial markets again on Monday.

Having gone through the worst crisis in the last 75 years, the markets were complacent and overly optimistic in rallying sharply in the final nine months of 2009 under the presumption that it would have a classic vigorous v-shaped recovery.

Being cautious on the global economy, Stephen Roach, Chairman of Morgan Stanley Asia, says it is vulnerable to a double dip. However, he adds that the Asian markets are not factoring in the weakness in the economy yet. "Risky assets are expected to be under periodic pressure."

On dollar, Roach says it could rally in the short-term. Over the long-term, he remains bearish on the currency.

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

Q: It's been a tumultuous period for global markets, what do you think has led to it and where are we standing now?

A: I remain very cautious on the prognosis for the global economy. Having gone through the worst crisis in over 75 years, I think the markets were complacent and overly optimistic in rallying sharply in the final nine months of 2009 under the presumption that we would have a classic vigorous V-shape recovery.

I think the recovery is going to be weak, anemic, fragile, and potentially vulnerable to a setback or double dip. I think the reality is starting to hit home in overly exuberant financial markets.

Q: How are you reading the news from Europe since you keep an eye on that and do you think this could blow-up to be a big bad situation or a contagion like situation or do you think it's overblown or blown out of proportion?

A: All major crises have one thing in common; they leave countries, individuals or businesses with a lot of debt. So it is not unusual to have or get driven shake out once the worse is over. I think we are going to see that for some time ahead in terms of the riskier sovereign debt markets of Europe, we could see ongoing debt problems for American consumers and we have certainly seen over 20 years of ongoing debt problems for the post bubble Japanese economy. So this is not a knee jerk reaction, this is not idiosyncratic that you can dismiss and pretend that it was just a bad dream.