Mar 22, 2013, 12.56 PM IST
"Do not expect Cypriot concerns to significantly impact the EU economy and expect US equity markets to outperform emerging markets in 2013," says Mark Matthews of Bank Julius Baer & Co in an interview to CNBC-TV18. "Indian market performance will improve in the second half of FY14."
In an interview to CNBC-TV18, Mark Matthews of Bank Julius Baer & Co said that he doesn't see Cypriot concerns significantly impacting EU economy.
Sharing his views on global markets he said, US equity markets are likely to outperform emerging markets in 2013 . Also, he expects the performance of Indian market to improve in the second half of FY14.
Below is an edited transcript of the analysis on CNBC-TV18
Q: Are you beginning to get a bit worried that emerging markets have not been particularly convincing during the last couple of weeks?
A: I haven't been a big fan of the larger emerging markets excluding India such as China, Brazil and Russia. I think the developed world, particularly the US and Japan, have a very pro-growth policy and the economy seems to be turning around in both those countries to dwarf emerging markets in size. Japan’s pension fund industry alone is larger than the entire German economy. So, I think that emerging markets have been slightly marginalised by the continued improvement in both major economies.
Q: The week started with the Cyprus crisis. How worried are you about the situation in the euro zone and could the next sharp correction be caused by panic from the euro zone?
A: At the risk of sounding blase, I am not concerned. If there was going to be a problem, we would have known it on Monday because there would have been a run on banks in countries like Spain, Portugal and Italy earlier this week.
For whatever reason, investors in Spain, Portugal and Italy do not think that the same kind of tax on deposits will be imposed on them as the International Monetary Fund (IMF) and European Union (EU) tried to impose on Cyprus.
None of the other peripheral countries are in urgent need of money and in fact they are gradually turning their finances around. So I think it is a problem that’s confined at a very small country whose GDP is only USD 25 billion. I think it will probably be resolved by next week.
Q: Do you think 2013 could be a year where the US market actually outperforms most other emerging markets?
A: Yes, I do. I think if was to rank in order of preference in stock markets, the US should be right at the top. It has posted very good and solid economic growth. Thursday’s market PMI was up to over 55 for the United States and house prices were up 6.5 percent year-on-year and the payroll data continues to be quite decent. I think the US economy is a perfect environment which is not too hot for the Fed to start to remove liquidity.
Q: Is that how the year may shape up with a few markets including the US leading the way while a large section including emerging markets in Asia struggle and underperform?
A: I think that it is not fair to generalise. Within the emerging markets, China is rather insipid and uninspiring. Therefore there is little upside expected in commodity economies like Russia and Brazil. India is a sleeper and will start to perform in the second half of the year.
Then there are other emerging markets with varying degrees of performance. Of course the real winners in Asia last year were the Southeast Asian markets. I can’t really believe they can go on to grow up another 50 percent which is essentially what they have done in the last 12 months. But I don’t think the bull market is over in those markets yet.
Q: Do you expect the summer to soak in a correction of any magnitude across global equities?
A: That's true. It is called the Ides of March. Generally, the best months of the year are the months at the end and the beginning of the year more so for psychological reasons. But, I wouldn’t base my investments entirely on this methodology. I think that it is very likely that the S&P will go to a new high over the next few weeks.
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