US data, yen key for mkt, India will be fine: StanChart

Global markets are down and if the cause was Cyprus before, now it is North Korea. These global headwinds will keep market in a period of uncertainty, but only in the short term, believes Steve Brice, Standard Chartered Bank. He pegs markets long term behaviour to US economic data and steps taken by Bank of Japan. Brice sees India performing well in the next 6-12 months on the back of policy moves.

He believes that if one is looking at longer term then the Indian stock market is likely to perform well. He sees the policy framework going in the right direction and believes this should keep people from becoming too pessimistic on Indian stocks. He also told CNBC-TV18 that he is underweight on gold. Below is the verbatim transcript of his interview to CNBC-TV18 Q: The big concern seems to be the geopolitical developments from North Korea. How have you read that? How much nervousness or panic do you think it could cause for markets in the near-term? A: We think the impact from these sorts of statements is likely to be fairly limited. Clearly, there was short-term focus, but markets are more focused on what is going on in the US economic data. The Automatic Data Processing (ADP) employment changed to weaker-than-expected last night. People are now saying that Bank of Japan is going to really step up and deliver on the expectations that have been created over the past few months. People are still saying this could be a little bit of a weaker environment for equity markets. We have obviously seen a very strong performance YTD. Maybe, these are the excuses for people just to take a little bit of a pause for thought. Q: What are you reading into the crack that we are seeing in commodities? Crude is below its 200 DMA, gold has been collapsing for the last few days. What is all that telling you? A: The technical for most commodities have been pretty poor for sometime now. What is interesting is gold. We have broken through that USD 1,550 support level as mentioned. That is really quite important at a time when the dollar looks like it might be weakening a little bit. Obviously, the weakness in the US data has certainly helped the dollar to step back a little bit from here and as we head into the Bank of Japan meeting. So, we need to see that sustained break of USD 1,550 through the end of this week to verify it, but it would be a poor indicator for gold. We are underweight on gold within our asset allocation, so a break had been expected. However, to come at this time is a bit earlier than even we had anticipated. Q: That Bank of Japan meeting is underway and some of the first thoughts are coming in from there. Are all these in lines with market expectations or are they falling short? A: It depends on whether this is the start of the process or the end. Clearly continuing purchases were absolutely necessary for market to not take it too negatively. As I said before the market has been pricing in an incredible amount. So, at least now we have some action, whereas before we would have very little. From that perspective it is a positive step, but clearly further details are going to be needed to see whether that is going to keep the Yen where it is or maybe even weaken it further. Q: If markets are heading for a period of uncertainty though because of the various reasons we discussed how do you think some of the more vulnerable underperforming markets like India may fare in that patch? A: If one is not performing very well in an environment where stocks generally are doing rather well, then if stocks were to take a bit of a step back that would not be a positive signal. However, if we are looking at longer term, over 6-12 month basis we still feel that the Indian stock market is likely to perform well. The global environment overall is likely to be conducive. We may go through a little bit of a soft patch from a growth perspective in Q2.However, we still believe in a year of transition towards stronger growth in the second half of the year and in 2014. Meanwhile, we have obviously got the policy framework in India which I am still focused on. The Budget now seems the ancient news. It was not as positive as people had probably hoped for, but overall we still see the policy framework going gradually in the right direction. That should keep people from becoming too pessimistic on Indian stocks.