May 30, 2013, 04.55 PM IST
Marc-Emmanuel Vives of Societe Generale India sees no more room for quantitative easing and raised concerns about structural issues in all major economies of the world.
Marc-Emmanuel Vives of Societe Generale India believes that investors should not be overreacting to the reports of US Federal Reserve tapering quantitative easing (QE), as it was anyways expected.
"Definitely we already knew that there was no room for additional easing and I think we are just now facing the reality, which is that all the major economies of the world, there are structural issues," Vives told CNBC-TV18.
Global indices have been jittery post US Fed's address on monetary policy. QE fed liquidity has been the key reason for rally in global markets over past three months.
Also read: Eurozone bank lending falls again in April
Marc believes that Euro will weak against dollar going forward in a rebalancing act. "If you look at the fundamentals the very strong position of the euro in the last period of time was a bit striking. At the end of the day the currency has gone through a very strong internal crisis for the biggest part of 2012," Marc explained.
Below is the verbatim transcript of his interview.
Q: The global markets have been jittery on the back of expectations of the Fed tapering its bond buying programme in the month of June. Are you getting a sense that this is just a reason that investors are using to take money off the table or is this more legitimate fear that could play out in the next month?
A: Probably the markets are getting nervous because they are concerned about existence structural issues in all major economies of the world. So, they might be reacting or at times overreacting on some news in the financial evolution. We all know that we are approaching a moment where quantitative easing in US and in other parts of the world is coming to an end. Definitely we already knew that there was no room for additional easing and I think we are just now facing the reality, which is that all the major economies of the world have structural issues that have to be attended. In the case of the US, it just started to attend it in the last two-three years. We see that there is deleveraging that was needed, we see that there is reduction in the huge public deficit. I am from France and we see that the problems in front of us, which is mostly linked to excessive indebtedness at the levels of the states and will last for many years. This is an imbalance that cannot be solved in six months time
There are problems in China too. Even if the level of growth is still very significant when compared to the level of economic growth within developed countries, we have to admit that China was growing at 10 percent. It is more probable that in the next year they will be in the range of between 7 percent and 8 percent. They have their own challenges to make their business model, model of a country evolve from what was completely led by very high investment in infrastructure and very high growth in exports to more domestically led. It is easier said than done. So, I think we are in for a moment of volatility.
Q: In terms of what exactly has been taking place on the Nikkei what exactly are the European institutional investors as well as traders talking about. Do you see further downside coming into the Nikkei hence there is some amount of pullback in terms of fresh inflows from the European space into the Japanese markets at all or do you think that this is a good opportunity to accumulate considering the strong fall that we have seen in the past few weeks?
A: That’s probably a very good question, but I am not a specialist of Japanese markets and I am not sure I can give you a very pertinent answer. I think it is natural anyway that there was a correction after a very positive mood that invaded the market after the first announcement, until the first decision by the new Japanese government.
What will be the trend on the Japanese stock exchange for the future, it would be going totally out of my scope of knowledge and responsibility. So, we have to be cautious with this movement. I think it is mostly a correction, which is natural at this stage.
Q: What about the euro. What is your view on the currency itself and what trend are you hoping to see in this year?
A: We are at a moment, at least that’s what we believe, of revaluation of the dollar and definitely we think that over the next period of time we should see the euro go down versus the dollar. I think it is a rebalancing because if you look at the fundamentals the very strong position of the euro in the last period of time was a bit striking. At the end of the day the currency has gone through a very strong internal crisis for the biggest part of 2012. We can expect that now we are if not completely out of the woods at least probably in a much better situation.
I believe and our group believes that we will see the euro weakening in the next period of time.
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