Moneycontrol » News » Markets » Expert & FII Outlook

See trading collapse, FII outflow in emerging markets: UBS

Published on Mon, Mar 09, 2009 at 12:39 | Source : CNBC-TV18

Updated at Tue, Mar 10, 2009 at 18:37

Like this story, share it with millions of investors on M3

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show »

ALSO READ

Nifty

BSE | NSE 25/05/12

Are Mutual Funds betting on Nifty?

Commenting on the outlook for emerging markets, Bhanu Baweja of UBS said emerging markets (EMs) are likely to see trading collapse, as huge flow of foreign institutional investors (FII) money will reverse.

Going ahead EMs will have a structural problem and economies will weaken, thus investors wouldn't want to invest in EMs.

"Even the EM currencies are likely to weaken due to collapse in interest rates. However, monetary condition will have to ease by lowering interest rates in the EMs. Soon inflation will turn to deflation."

Baweja is bearish on rupee over 6-12 months. "I see rupee at 55 per dollar before it strengthens over 1-2 years."

Meanwhile, outlook for the global equities still remains negative along with downside risks to US economy, Baweja added.

Also Read:

See 10-15% global rally; EMs to go even higher: Marc Faber

Here is a verbatim transcript of the exclusive interview with Bhanu Baweja on CNBC-TV18. Also watch the accompanying video.

Q: What do you think is responsible for the kinds of outflows are seeing in the last few weeks from emerging markets overall, the FII outflow?

A: For developed world this is a balance sheet, i.e de-leveraging problem. But for the rest of the world, large part of the emerging market space, this has a very severe income statement problem. We have not seen a global slowdown of this magnetite since at least 1980s and likely before that, probably since after the World War II.

So what we are likely to see in several emerging market economies - which have absolutely no debt, which have large reserves, which are still external net creditors - trading sector completely collapse. That will have an impact on inflation which will turn to deflation and that will have an impact on domestic spending and unfortunately also on unemployment levels. As a result, several emerging markets are seeing this huge flow of capital from Anglo-Saxon economies reverse and that is something we do expect that in months and quarters ahead.

I don't think at this point anybody would want to come out and invest in emerging markets. We think people would hoard capital as close to their chest as they can. Which means emerging market economies, even if they don't have a structural problem will have cyclical problem and their economies are going to weaken quite a lot, their currencies are going to weaken quite a lot.

On next page: Rupee outlook

1 2 Next page »