Europe may outdo US equities in 3-6 months: Richard Harris

In an interview to CNBC-TV18, Richard Harris, chief executive, Port Shelter Investment Management talks about his reading of global markets in the current environment and discusses where markets are headed in the medium-term.

Below is an edited transcript of his interview. Watch the accompanying video for more. Q: What’s the next indicator you are watching out for? Would it be actual bond purchases considering the Spanish yields are once again entering into eerie terrain?
A: The main problem with Europe at the moment is although we have had quite a big bazooka over the last week with the ECB being allowed to buy bank debt in some of the markets in Europe, although that big bazooka is there, there is actually no trigger for it. At the moment the Germans really want to have some kind of independent regulator to look at this. But of course if a bank was in trouble in Spain would the Germans be allowing to close it down?
So at the moment there is a lot of concern about exactly how it’s going to work. The one thing I think we can be sure of is that it is there, it will work and it actually still is quite good news for Europe that this whole deal was done last week. Q: From the US markets what is it  that you are reading? Should one still expect a QE3 to come in, in the first week of August or will that get postponed now?
A: Although I am not sure the US at the moment needs a QE3, I think something is going to happen, maybe as you say towards August time. The problem is that with election year it’s going to be very political. Really, the Fed is in some difficulty. If they do something and they do a lot they are going to be accused of supporting the incumbent, President Obama, if they do just a little it will be the opposite. So I rather suspect they are going to do maybe half and half, so they can say to one side - we didn’t do too much and the other side we have only done a little bit. So I think that’s going to be happen.
My feeling is over the last week we are starting to see a little bit of a sea change between the US and Europe. In Europe, we sort have had this floor appearing. I think that the support will do well and that’s going to support Europe, but in the US we are starting to see a drip, drip, drip of negative news. The chances are that in the next three to six months I suspect Europe is going to outperform the US in the equity markets. Q: How would you advice smart money to move? Would it be pro-equities at all since you are not very positive on even the biggest of equity markets?
A: I think smart money probably is going to stay put at the moment. However, money that feels a little bit more adventurous, and especially if you are a global allocator, it is probably going to start saying - well let’s start moving a little bit safe from the US to Europe.
After all, the US has outperformed massively over the last six to nine months compared to Europe and if you were sitting on a balanced portfolio say six months ago, you would probably be sensible rebalancing it back and that really means money moving from the US to Europe. Where would you buy? Well, the old story at this moment is we are still in a risk-off situation, but equities are fine if you are looking for sensible large companies with low debt, good brand names and good business model, nothing very clever. Q: Are the investors that you are speaking to interested in infusing cash in the Indian markets because we have seen a lot of FII inflows over the past few days?
A: Yes, there certainly has been a bit of a move. The Indian market has been reasonably buoyant. I suspect that maybe the weakness of the rupee had something to do with that because often you see this correlation between weakness of the currency and between strength of the stock market, not always in exact correlation but that may have had something to do with it recently.
The problem is with such a good movement in the market lets face it, Indian markets have been one of the better performing markets this year globally. Then you have to be a little bit cautious about how far it is going to go because the news coming out of the West is not that good and it is very difficult for markets like China or India to really buck the trend if that’s happening. I would probably be cautious, and if I was comfortable in my own market then I would just stay there at the moment.