Global markets may see 5-10% upside in 3 months: StanChart

China, Europe and Britain loosened monetary policy on Thursday. In an interview to CNBC-TV18, Gerard Lyons, Standard Chartered says, global equities will have a positive performance in the near-term. "Equity markets may move 5-10% in the next two-three months. This could be a good quarter for global equities," he adds.

According to him, the euro is overvalued. "I think euro does need to weaken. I think the peripheral economies, Greece, Spain, Portugal, Ireland, Italy and now Cyprus as we have seen in the last week, need a competitive boost. The best way to achieve that is a weaker euro," he asserts. Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video. Q: Now that we have seen the outcome from the EU summit as well as from the ECB meetings, how do you think equity markets globally will react? If there is an upside, what kind of an upside do you see? A: I think global equities will have a positive performance in the near-term largely because the downside risks in terms of Europe have been removed for now. But let’s not forget that last January or so, the markets also saw the downside risk in Europe being removed and that led to a big rally. It wasn’t a sustained rally. So, equity markets may move 5-10% in the next two-three months. This could be a good quarter for global equities. But the reality is that the world economy is very divided and it is very disjointed. America, on its recovery, is experiencing only a steady and not a spectacular recovery. So, one of the factors that is allowing markets to perform, at the moment, is the fact that low interest rates in the West and the prospects of further rate cuts or further quantitative easing (QE) is adding phenomenal liquidity to the global markets. That is one of the key factors driving them at the moment. Q: How crucial a role do you think the currency market will continue to play in that context? What is it that you expect to see on the euro and the dollar? A: Not much in the very near-term, given the market sentiment. But I think the euro is overvalued. I think euro does need to weaken. I think the peripheral economies, Greece, Spain, Portugal, Ireland, Italy and now Cyprus as we have seen in the last week, need a competitive boost. The best way to achieve that is a weaker euro. Ofcourse they need other policy changes as well. I think the euro itself looks soft, but ofcourse as we have seen markets sentiment can be very volatile. Q: The curveball that has been thrown to markets is the kind of data that is now coming out from the US and more and more calls from people that perhaps by the start of next year we have a recession like scenario in America. Do you think that is something equity markets have factored in? A: I don’t think US recession risks have risen. Infact given recent months, the risks are more balanced in the US. It is on the upside. Big corporate America has balance sheets that are pretty good, big firms are in a pretty good shape in America. They need to go out and invest. But they haven’t, partly because of the regulatory worries about the election, but also they haven’t because the demand is pretty sluggish. And that comes directly into your question about the downside risks. I don’t think these risks have intensified or risen. But people should be factoring in a downside risks. It is only for the people who are too optimistic that they now have to reassess their view of the US. But the US economy is weak. It is steady; it is not a spectacular recovery. Atleast America has enacted a stimulus policy unlike Europe, which has gone for austerity. But it is important for America to continue to stimulate its economy as much as possible. _PAGEBREAK_ Q: What about the looming worries of the US fiscal cliff towards the end of year? Would you not be concerned about that? Would that not be a central risk for markets globally? A: There are so many risks for markets. The risk of a war with Iran is a risk that should not be underestimated. If that happened, it will lead to a major spike in oil prices. Apart from that, the other risks are more economic and financial in nature. But the problems in euro area, not only continue but intensify. I think those problems will return. Also, the US economy faces considerable challenges. It faces a fiscal cliff. It also faces the US regulatory mountain and the jobs pressure. So, the combination of the fiscal regulatory and the jobs picture suggests a pretty sluggish recovery in US. So, overall, I think the big challenges are a continuation of the problems in the West and also the risks of shocks such as problem in Iran leading to spike in energy prices. Q: If you had to map the second half of the year for global equities, how do you see it pan out? A: Next three months could be better partly because of the liquidity and the improved sentiment because of Europe. Earnings though may disappoint the next few months. So, there are offsetting features. But I think as we are moving towards the latter half of the year, it is very much going to be earnings expectations for next year and also what the post US election outcome is going to be like. So, there is the possibility for some markets to do well in the near-term.