Mks should worry about weak eco demand in Europe: JPMorgan

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The world has been on a bit of a tizzy these last couple of days although things stabilized in the US yesterday. Adrian Mowat, Chief Asian and Emerging Equity Strategist, JPMorgan, says the markets should be concerned about weak economic demand in Europe. He reiterated that the Indian story is fundamentally and economically strong.

According to him, China's stimulus exit strategy may cause weaker demand for commodities and this in turn may result in a correction in prices.

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

Q: How is the JPMorgan Conference going and after the turbulence of the last couple of days? What is the sense you are getting from the investors who are attending?

A: With regards to the conference - very successful. Clients are interested in the Indian story. Getting clients face-to-face with Indian managements usually adds to confidence as it did this time around. You have a story here, which is fundamentally very strong, macro economically as well as having strong management teams and when you compare India with China you tend to get a lot more private sector companies as a percentage of the overall index rather than in China where there tend to be a lot of government sponsored entities.

So the conference went very well. I think clients' confidence on the Indian story was higher. Now, talking about what is going on in markets at the moment - that really is very independent of the India story. I would highlight a number of key dynamics there. We have a sovereign debt crisis in the Euro area which started off with Greece and now there are concerns about the other countries with poor fiscal positions, which have rather unfortunate acronym of the PIGS (Portugal, Ireland, Greece and Spain). And if you think about the dynamics of this crisis, it is difficult for a country that is part of a Europe monetary union to print money in order to monetize its fiscal deficit, which is pretty much what we are seeing happening in the UK or in US.

So you are forced into a period of fiscal austerity, which is the path that the Irish have taken and the Greeks have announced and are being forced into that path of fiscal austerity. Maybe what markets should be more concerned about is not so much a sovereign debt crisis but more weak economic demands in Europe.

But let's put this in perspective. Within the European area two economies Germany and France - more than half of GDP - those economies have relatively good macro economic statistics. So it is likely to cause weak demand in the fringes of Europe rather than undermining the overall European growth story

Q: On the subject of what is happening across China - how worried are you about the noises coming from there and of course the collateral damage for the entire commodity universe?

A: Let's not forget that the story going on in China as well. We are seeing a growth rebalancing occurring in China. China is exiting from its very aggressive monetary and fiscal stimulus. That exit is likely to cause a weakening in demand for commodities and we do have some concern that we might see a correction in commodity prices. It has been notable that the weakest market in the emerging market (EM) space year-to-date has been Brazil, which is clearly a very commodity dependent market.

Q: Your report on 2010 though indicates that this year you expect growth to be led by developed markets rather than emerging markets this year. Is it your call that the macro growth for markets like ours may falter in 2010?

A: I said that surprise in terms of a positive surprise these rallies come out of particularly developed economies like the US. Remember that in this point in time the expectations are positive for EM growth, EM economies. So it is rather difficult to surprise positively versus that. My concern about macroeconomic conditions in the emerging economies is inflation.

We think inflation will continue to rise in terms of headline inflation due to a base effect through the middle of this year and then will beginning to platter and come off. If that is the case then I think EM equities will do well. If inflation continues to persist then the prospects for good returns that of emerging markets equities will be quite remote.

This is all about inflation in emerging economies rather than more growth. I think we have already got plenty of growth.