SENSEX NIFTY
Sep 16, 2013, 11.54 AM IST | Source: CNBC-TV18

Global liquidity led to market rally not Rajan: Udayan

This global liquidity phenomenon, which is playing out can lead to more aggressive pricing of emerging market assets and currencies in the days to come even if it is not fundamentally warranted, says Udayan Mukherjee of CNBC-TV18.

The rally seen in emerging markets in the past few days is driven by global liquidity phenomenon says Udayan Mukherjee of CNBC-TV18.

Larry Summers’ withdrawal from the Fed chairman race is the key event for the markets now. After the US non-farm payroll numbers emerging markets started to sense that there won’t be very aggressive tapering of quantitative easing (QE) by the Fed, he explained.

“A lot of people have fashioned it as a Raghuram Rajan rally, I think that is not the truth. It is an emerging market rally because those got terribly oversold,” he added.

Also Read: BNP cuts '13 Sensex target to 17K, sees one more correction

Below is the verbatim transcript of Udayan Mukherjee’s analysis

Today is the Larry Summers’ party. There are many other cues stacked up this week, but the most important event is the withdrawal of Larry Summers from the Fed race. Because just to play with words, the question that a lot of people are asking is whether withdrawal of Summers could mark the end of the long winter for emerging markets. But, I think that is the reason why the rupee is starting the day at 62.70/USD and that is the reason most emerging markets are rallying.

The first signal of it came with the non-farm payroll numbers where emerging markets started to sense that the data points are not suggesting a very aggressive tapering of quantitative easing (QE) by the Fed. Now with the withdrawal of the candidature of Larry Summers that kind of talk it will gain more.

The rally of the last few days has been purely a global phenomenon. I know a lot of people have fashioned it as a Raghuram Rajan rally, I think that is not the truth. It is an emerging market rally because those have got terribly oversold. Just map the performance of the last ten days, the equity indices of India, Brazil, China, Russia are all up 7 percent and that should tell that this is a global phenomenon which is playing out. Therefore it is prudent to keep the eye on the global ball.

Emerging markets had got terribly oversold over the last couple of months, nobody wanted to buy them and suddenly in the last ten days there has been a bit of a twist around in that sentiment. Exchange traded funds (ETFs) which were seeing a lot of outflows have started seeing inflows and that trade might gain currency with the developments overnight.

So, this is a global liquidity phenomenon, which is playing out right now and that can lead to more aggressive pricing of emerging market assets and currencies in the days to come even if it is not fundamentally warranted. There is a genuine chance that assets get mispriced over the next few days as they get overheated because of the trade coming back to emerging markets as seen in the last ten sessions.

READ MORE ON  QE, Larry Summers, Fed, Nifty

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