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Aug 03, 2012, 04.03 PM IST
Manpreet Gill of Standard Chartered expects funds to continue flowing in emerging markets, but he is optimistic about funds flowing into the fixed income space than equities in the near-term.
Manpreet Gill of Standard Chartered expects funds to continue flowing in emerging markets, but he is optimistic about flows coming into the fixed income space than equities in the near-term.
In an interview to CNBC-TV18 Gill said that he expects global central banks to keep interest rates at lower levels. "The one thing that sort of comes out very strongly from both the Fed and ECB and most likely we will hear from the Bank of Japan as well is that low interest rates are likely to be here for an extended period of time," he elaborated.
The funds coming into the equity space will be volatile in nature. Further, the event risk in Europe could weaken money inflow for some time, but globaly, central banks would intervene to fill the gap, which is positive for equity, he said.
Below is the edited transcript of Gill’s interview with CNBC-TV18.
Q: Where do markets head from here? The fact that almost every time there is a capitulation, bad data or Spanish yields going to 7.7%, the European politicians are moved into doing something, put some bottom to this market do you think?
A: It put some sort of bottom, but the reason why markets have no sort of sold off in a big ways because the expectations of policy action were somewhat mixed. I don’t think the market was sort of leading in tally in one direction where 100% the market was expecting some sort of ECB policy easing measure.
In addition to that fact, ECB President Draghi has also indicated that while nothing sort of happened in this meeting many new measures are likely to come by the next meeting. That’s what is providing some sort of support to market even if there is a bit of disappointment that nothing happened in this meeting itself.
Q: What are those measures that you think will possibly plausibly happen? Would it be buying of bonds from the ESM kitty? What are you expecting as the first few steps that might come?
A: The actual measures themselves could be a combination of more than just sort one approach to deal with it, but we expect that whatever the exact measure is, it will essentially be aimed at capping sovereign debt yields in the peripheral markets, more so in Spain and Italy.
That is risk that market is concerned about, that’s the risk that policymakers want to address. It will most likely have to be some combination of direct bond purchases both by some of the multilateral funds, the EFSF, or ESM supported by the ECB in some form or way.
But ultimately, the ECB has to be involved in those purchases to make the purchases credible. The ESM ultimately has a limited amount of firepower which isn’t credible to deal with the outstanding debt in Spain and Italy combined. Only the ECB has that credibility.
Q: Now that the Fed is done, the ECB is done how do you expect the markets to move from hereon?
A: We think markets will react in a combination of two factors. One is we can’t forget about economic data, that’s still pretty important particularly in the US and in Asia. The fact is that economic data may have been disappointing quite considerably for the last month or so but the extent of those disappointments are actually beginning to reduce.
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