Jan 04, 2013, 10.34 AM IST | Source: CNBC-TV18

See strong equity mkt for next 2-3 months: Richard Harris

The market sentiment has soared all around the world including the Asian equities as well. In an interview to CNBC-TV18, Richard Harris of Port Shelter Investment said that strong equity growth is the main reason for the sharp rise in the market.

The fiscal cliff has been passed saving 98 percent Americans from tax hike. Market sentiment soared all around the world including Asian equities. In an interview to CNBC-TV18, Richard Harris of Port Shelter Investment explained, liquidity infusion from developed countries into equities is boosting sentiment and leading to this rise.  

"We are in the middle of a period of strong equity growth and that is because countries from Europe to the US, to now Japan are printing money and all that liquidity has to go somewhere and a lot of it is ending up in the equity markets."

Further, he added that markets have largely discounted a number of factors relating to the fiscal cliff, so he expects to see strong equity markets for the next two to three months.

Below is an edited transcript of Richard Harris's interview on CNBC-TV18

Q: Will it be a very happy New Year going forward as well? Has the impact of the averting of the fiscal cliff already played out or are we going to see another bout of risk asset buying?

A: We are actually in the middle of a bull market that started two to three months ago. We had a big run up since the end of the year and this all has happened despite the fiscal cliff. The fiscal cliff was a bit of a sideshow although it became the main show because there was so much press attached to it. But in reality we are in the middle of a period of strong equity growth and that is because countries from Europe to the US, to now Japan are printing money and all that liquidity has to go somewhere and a lot of it is ending up in the equity markets.

Q: We have the Asian equity markets such as the Hong Kong market at 19-month high, Australia at 20-month high, even the Indian market is at 20-month high. How much of a further upside do you see in 2013? Do you think it is going to be some amount of a protractive consolidation period that we might face?

A: 2011 was a bad year for most markets, big negative figures knocking around all over the place. 2012 recouped some of those losses, some of which were caused by frightened selling because of the European debt crisis. We are at the early stage of a bull market that could see another 19-20 percent higher certainly in emerging markets because these things feed on each other. That does not say that the fundamentals are good, but what we have seen is the surge of liquidity from the central banks in the western world and a lot of that liquidity is ending up in our markets.

Q: There is a lot of argument on the impact of higher taxes on the US economy, although these taxes are lower than what would have happened if the economy had gone over the cliff. Nevertheless these are higher taxes. What is your estimate of the impact on the US economy and more importantly on the markets? Have markets factored in that impending slowdown or contraction in demand?

A: Markets are a lot smarter than we think and because this whole move for the fiscal cliff has been almost like a slow moving train rake, markets have largely discounted a number of these factors. That is why for the next two to three months we could see quite strong equity markets. The American economy can handle higher taxes. After all their growth has been much higher, because of course the Fed has been printing money and the US taxes are a lot lower than most other western nations. So they are really talking about small increases in taxes like 2 percent here or 3 percent here, be swallowed up in most inflation figures and would not have an impact on the market anyway.

Q: In 2013 if you see a further upside in equities from current levels, which market may possibly lead it? Are there going to be some amount of higher gains coming in from China and Japan which were underdogs in the past couple of years, not to mention the late rally that we have seen in the markets or do you think that it is going to be led by the US or maybe even Europe?

A: US and Europe will have their own form of markets. US had a pretty much 2011 and a pretty good 2012. Europe had a reasonably good 2012 with markets up as high as 20-30 percent indeed in Germany. We are going to see further liquidity into the emerging markets, but of course the big laggard has been China.

China’s markets have been falling for three and a half years, almost unprecedented for markets to have negative returns for that sort of period of time. So that is the next stage and we are going to see moves in China as we are seeing some collateral moves in Hong Kong today.

Q: What about India? Do you track Indian market closely? Do you think after having done so well in 2012, it is good to go for more in 2013?

A: Yes. India did not do so well in 2011. Some that we saw in 2012 was recouping the losses of 2011. The emerging markets act as extra barometers for the liquidity that is in the market. It takes just a small amount of liquidity out of those markets to make quite a big influence in markets like India, China, Indonesia, Thailand. So, it is going to be quiet for a while, but this is only for first quarter, maybe the second quarter as well and then sanity will flow back into them again.

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