Cyprus bailout, a reminder to Europe crisis: Jeff Chowdhry

Cyrpus got a 10 billion euro bailout deal from the EU. However, in return they will have to impose a levy on depositors. Jeff Chowdhry, Head of Emerging Market Equities, F&C Investments told CNBC-TV18 that Cyprus is a very small country, but there is a lot of international money, about a third of deposit in Cyprus is Russian.

In his view one of the things that obviously hit the markets today is the fact that it was a surprise. "It was a much needed reminder of the fact that the European crisis has not gone away", Chowdhry said. Q: What is your view on what has happened in Cyprus, do you think it is just a one off case and may not trigger sell off in other peripheral economies or would you be worried now? A: A lot of commentators are saying that this causes systematic risk. The likelihood of it going across other countries is high. I would slightly disagree with that view. We know that the European crisis has not gone away, but Cyprus is a slightly separate case for a couple of reasons. The first reason is that there is a lot of international money and some people believe that up to about a third of deposit in Cyprus is Russian. So, that is one issue. The second thing is Cyprus is a very small country and it is a warning shot that this can happen. What the authorities are saying is if you are small we will come down on you hard and if you are big like Italy or Portugal or Spain we are not going. That is what my interpretation would be at this point in time. Q: Would you assume that the reaction that we have seen in the European equities as well as the currency is just a one off and may be temporary and you expect a recovery soon? A: One of the things that obviously hit the markets today is the fact that it was a surprise because nobody was talking about it. Also the fact that if, we needed a reminder of the fact that the European crisis has not gone away, we have got that reminder today. It is fair to say that as things settle in the next week, the markets will still remain focused on the fact that lots of liquidity and there is lots of money, which is required in the home. So, the market will recover, although it obviously won’t be in the next day or so. The other thing just to sort of point out is that at the moment this is still a proposal, which is on the table. This has not been ratified by the authorities. So, it is possible that there could be some variation. One of the things that they are talking about is a levy on much bigger deposits, above 100 thousand Euros and let the small investor slightly less stringent.