The crisis in Egypt are getting sourer with oil prices, which rose to levels just short of 100 dollars a barrel on Friday, holding firm as protests against Egyptian president Hosni Mubarak's regime enter the seventh day.
Talking about the impact of the brewing crisis on Indian markets, Shane Oliver head investment strategy and chief economist at AMP Capital Investors said it could have a large impact on all emerging markets. However, he was quick to add that the primary risk in India is inflation. "Also, valuations here are not as attractive as earlier." In an exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee, Oliver said there was a risk of crude being impacted by the turmoil in Egypt. Below is a verbatim transcript of his exclusive interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video. Q: How are you reading the Egyptian situation, we are keeping an eye on it because it has peck crude back to USD 92 per barrel which is not very comfortable for India? A: That is right. The situation in the Middle East is a bit of a concern. Egypt on its ernst is a bigger worry, unless it leads to some disruption to this Suez Canal through which a lot of oil of course spreads through going in to Europe. The bigger issue is whether there is a conflict in the unrest we are seeing in Egypt spreads to other Middle Eastern countries which produce oil. At this stage, I think the market is mainly just factoring in the risk, outside the risk of this crisis spreading to other countries in the region is relatively low. I am not overly concerned. But I can understand why the markets are worried, until the situation resolves itself. Q: Just to pick up on the point you were making though, do you think the situation in Egypt could be the catalyst to ensure that crude makes that jump above a USD 100 to a barrel something that will make equity investors quite uncomfortable here? A: Well it is a good question. Right now, the crude price is USD 90 a barrel that is for US crude of course is at around recent highs, the highs of the last month. If that breaks through, you could say run up to about USD 100 a barrel level. The bottom-line globally is you got a situation where commodity prices that were benefiting from global reflation, in other words very low interest rates, such as gold were until recently on the rise. Now, we are seeing a re focusing towards those commodities that will benefit from stronger global growth such as oil. Some crude oil benchmarks have already gone through the USD 100 a barrel level such as Brent and some of the Asian crude. So, it is a matter of time before US crude gets through as well. That in turn of course risk adding to the inflation pressures, we are seeing across Asian and of course in India could lead further monetary tightening. Therefore, worries about a greater slowdown in growth. I am not overly concerned, but I think there is a risk in the short-term that the monetary tightening across the region and in India will act as a dampener on share markets. Q: That has been the central problem the one that you highlight, inflation and interest rates, do you think the risk of this underperformance relative to developed markets continuing for a few more months remains for markets like India? A: I think that risk is certainly there. In fact we have moved to underweight emerging markets and Asian shares generally compared to developed country market such as the US. So, strategically taking a long-term view, I would much prefer India or China or Asian markets generally. But for the next few months, I think all this reality and the talk of further monetary tightening will act as whites on the markets in the region. Valuations have come back. Indian share has had, when I last looked, a fall of almost 10% from its recent highs and valuations have improved. So, in that sense it is not a major problem in terms of original share markets. But I just think the timing that we are seeing in central banks is like a bit of a white in the short-term probably up to mid-year. _PAGEBREAK_ Q: So if you were cutting position across Asia or even India, are you reducing your interest rates sensitiveDiscover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
