Would dip a toe into India, emerging markets: Justin Harper

In an interview to CNBC-TV18, Justin Harper, head of research, IG Markets gives his outlook on the current global environment, post the EU summit. He also discusses other risky asset classes like crude.

Below is an edited transcript of his interview. Watch the accompanying video for more. Q: Is all the good news over for now and now the nail biting implementation of what Europe agreed to? In the meanwhile, would Spanish bond yields for instance go back to the 7% mark? How much of this peace that we have bought be retained?
A: That’s the big question because really only time will tell what will happen. Firstly in the front line are Spanish bond yields to see if they do creep up back to that 7% worrying levels and only the market will make that decision. For the time being, it has quelled a lot of fears amongst investors. It seems to be that they are actually trying to do quite clever things with recapping the banks and allowing countries to look more after their own finances without such sever austerity measures.
However there are still some very big questions about who is going to sign up to where the money is going to come from and Germany who holds the purse strings what do they feel about all this. There are still a lot of unanswered questions. We will see that in bond yields in Europe in the coming days. Q: Whatever we have seen from the EU summit, is it sufficient for investors to start pumping in money into the equity markets? What's the mood now towards the equity markets?
A: The equity markets got quite excited about this. But I think now the ball is still in the court of the EU and the ECB to say may be we need a fresh bout of monetary policy easing. We could well see that still in the US we could see that in China and there is no reason why Europe can't follow up the 19th summit with even more measures there.
This shouldn’t be seen as a one off and now we wait and see what the markets do, with the driving force behind the EU and the ECB they could actually follow this up now. There is talk on the trading floors of more being done and more being announced. We are waiting to see whether that’s the case but we can’t rule out anything from the EU at the moment. Q: Do you think the risk on will continue? Personally, would you add on to risk assets in anticipation that the ECB is going to oblige or maybe even the Fed? What will the ECB oblige with? Only a rate cut?
A: Possibly. They have still got different tools that they can use there regarding LTRO and the debt that they can refinance. However, you have to wait and see. What they announced last week is pretty big and we know it will take months and possibly a year with the banks’ supervision to come into force.
We need to see how the market reacts and we need to see devil in the detail of exactly how they are going to provide the funding for those things. We can't have a knee-jerk reaction. We have to wait and see what the EU will do after Thursday-Friday which is pretty successful. It has been treated well by the markets and they have seen the positives that have come out of it but there are still a few cracks there when it comes to Germany and who will support this measure. Q: Does crude get more expensive as it would be of more importance for an Indian audience? Do you think people will buy more crude at current levels or does it recede?
A: I think crude along with risk assets will see a rally there. However, there is a danger that people will be knocked back down to earth and they will see there is profit taking to be had when they hit certain highs. I can't see crude going above the USD 100 a barrel at the moment for Brent because there is so much supply coming on to tap. We have got an EU ban that’s coming in against Iran.  A lot of people have obviously been planning ahead for this. We have got Saudi Arabia, we have got Libya, and we have got supplies coming in, left, right and centre. I can't see crude rising above the levels it reached in March. Q: Equity markets today haven’t continued with their rally. Can the markets move higher?
A: I think they can. The strange thing about Thursday and Friday is we saw it as short-term fixes to help Spanish banking. However, there is a long-term problem there. So in the long-term, this will help stabilise the markets. However, in the short-term, there is going to still be a lot of jitters amongst traders as to how quick this really is going to come and will it disappear. Okay, so it didn’t continue much into Monday. However, over the long-term we could see the markets perform better. Q: Some near-term ranges have been broken in the Indian market. We were meandering between 5,000 and 5,200, the Nifty is now trying to reach out to 5,300. Would you buy India now?
A: I would buy India now. The tide could be turning a little bit as sentiment is improving amongst foreign investors. There seems to be a lot done by the Indian government there to try and quell some of the worries over tax reclaiming and Vodafone. I would definitely dip a toe into India and other emerging markets at the moment.