Apr 15, 2013, 05.08 PM | Source: CNBC-TV18
Global markets have now become incredibly sensitive to marginal changes in economic growth data, believes Richard Gibbs, global head, Macquarie Securities.
Richard Gibbs (more)
The Principal, Plantagenet Investments |
"US retail sales data disappointed. Chinese GDP was below expectations at 7.7 percent. Also, gold falling is based around the fact that gold is not now seen as an imperative to hedge against possible destruction of national currencies or exchange rates as it as at the beginning of the euro crisis," he said in an interview to CNBC-TV18.
Meanwhile, he added that one may continue to see exchange traded funds (ETFs) being allocated to developed markets.
On India, Gibbs feels the Indian government needs to become very ambitious about the implementation of structural reforms to make the stock market attractive.
Below is the edited transcript of Gibbs’ interview to CNBC-TV18.
Q: The big development is the sharp crackdown in global commodities- gold and of course crude over the last few weeks. How have you read it? What kind of ramifications does it have for rather risky asset classes like emerging markets (EMs)?
A: From last Friday, the market became very sensitive to any kind of shocks or disappointment on the growth side globally and within national jurisdiction. Of course the retail sales data in the United States disappointed and that really led us into a weekend where people were starting to wring their hands about the durability of recoveries in the global economy. Chinese GDP today has obviously disappointed a lot of people in relation to the consolidation from 7.9 percent to 7.7 percent. So, we have got a global market that is incredibly sensitive to marginal changes in growth. The growth drivers in the global economy are seeing a bit of a return to some risk-off plays. It is also seeing gold falling based around the fact that gold is not seen as an imperative to hedge against possible destruction of national currencies or exchange rates as it was at the beginning of the euro crisis.
Q: Data from this part of the world seems to suggest that there is an outflow that has begun especially for some of these emerging market exchange-traded fund ( ETF ) type products. Is that something you are seeing as well? That a pullout of liquidity has started for some of these ETFs?
A: Anything that has a fair amount of liquidity attached, tends to be the first one to be sold as liquidity or funds are moved out. Obviously the ETFs do have a superior amount of liquidity attached to them as an instrument rather than a direct exposure to the stock, you. So, I think we continue to see that sell down across the more liquid ETF securities as we see people starting to cut back in terms of their leverage and their exposure to the risk front.
Q: The counterargument seems to be how awash the system is with liquidity both from the Bank of Japan (BoJ) and the Fed and that may keep all votes afloat. Would you agree with that or do you think in the near-term money is probably moving towards markets like Japan and the US to the detriment of markets like India?
A: It is a very, very good point and it is one that at times perplexes me and frustrates me as I move around the world, particularly in the United States. There is an enormous amount of liquidity still domiciled there in the United States. The central banks' balance sheet activities, particularly the BoJ has been adding to that liquidity.