See flows in fixed income than equity ahead: StanChart

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. _PAGEBREAK_ Datas may not be fantastic in absolute terms but the fact is that the extent of disappointment is beginning to reduce and that’s ultimately supportive for markets. So that’s definitely a plus. Having said that, we are quite concerned about event risk in Europe. Between now and the next ECB meeting we have the Troika Report on Greece. We also have Spanish debt redemptions in October. Obviously, there are number of events that could sort of cause more risk aversion. We are about event risk being a potential trigger that could drive markets a little bit weaker. Q: Will money continue to flow in into the emerging markets as we have seen in the past few weeks? A: Possibly yes, but we are a little bit more optimistic about flows into fixed income space rather than equity space. 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, if anything longer than shorter period of time. That sort of supports the surge for yield. That’s positive for emerging market debt and that’s where we have been seeing a large amount of flows across the pan Asian space. So those flows we are quite confident about. The equity side we would expect those flows will be little bit more volatile. We are more concerned about event risk in Europe being a potential trigger, which might weaken those flows for short periods of time, but central banks do eventually step in to fill the gap that would be positive for equity flows as well. Q: The bottom is kind of protected but yet data indicates that nothing is really running up in terms of value, certainly not the equity markets in the west. Would that be a pull trigger for Asian equities for what it is worth? We have been seeing positive flows in India will that trend continue? It’s not a flood, but the trickle is there constantly. A: My view is that the trickle is definitely there. The trickle is there in markets like India, because when markets are broadly moving sideways investors are looking for slightly differing stories. In India what’s been interesting is that much more of the domestic concerns are in the price. Without fresh global risks there is some value in Indian equities and that’s one reason they have stood out a little bit. But when they move in broad direction these are the sort of individual stories that investors like we are more sort of interested in. We remain excited about Chinese equities and Asian high yield credits. So, there are asset classes where there is still value. That’s one thing investors still search for when there is no sort of strong policy direction from a central bank.