US may not shut down for long; buy market on dips: Aberdeen

Peter Elston, Aberdeen Asset Management Asia believes that the US markets have not priced in the possibility of a longer shutdown and expects both the sides of the US government to come together very quickly due to debt ceiling negotiations due in mid-October.

Also Read: Obama to Wall Street: This time be worried

Speaking to CNBC-TV18 Elston adds that the markets will face a lot of volatility due to the US default issue and therefore, equity markets are likely to fall. He recommends investors to buy the market on dips.

Below is the verbatim transcript of Peter Elston’s interview on CNBC-TV18

Q: How are you reading the events in the US? The US markets until very recently had not priced in a serious disruption of the economy or a long shutdown but do you think we should now begin to worry about it?

A: I still don't think they have priced in a substantial disruption to the economy essentially because they don't believe this shutdown will last very long. They expect the two sides to come together very quickly, like they did on previous occasions and will thrash out an agreement. Particularly, because we have much more important negotiations coming up namely the ones related to the debt ceiling that is coming up in around the middle of October and so, the expectations are that we will get an agreement before then.

Q: The debt ceiling discussion is more important than the minor shutdown of the US government, how do you think that might impact? Last time when the debt ceiling arguments happened in 2011, all asset markets fell including emerging markets (EMs), do you think we could see another round of all asset markets losing?

A: It is an interesting situation, game theorists around the world must be excited by all the different permutations and different maneuverings that both sides are making. But ultimately, both sides will be forced to realise that a potential default on US debt is such an awful outcome. It would be so disastrous for the US that it will not happen and there will be an increase to the debt ceiling. However, that doesn’t mean there isn’t going to be a lot of market volatility.

You might actually need the market to force the hand of these politicians and show them how serious this issue is. We haven't had a situation like that yet but it is possible that we will get one and that would be a great buying opportunity.

Q: How do you play this market, do you find opportunity in this adversity and buy markets and if yes, which are the markets at the top of your list?

A: It is difficult to have a central case scenario, a substantial fall in markets because you don't know when it might happen and in the mean time markets could go up a long way. So, it is always dangerous to have a strategy which assumes some sort of big fall in markets.

However, you can be ready for a fall in markets and be ready to act on that, in other words to increase risk within your portfolio, to take advantage of what presumably will be subsequently a big bounce back in markets. You must just be ready for a big fall and if you get one, take advantage of it.