Mkts eyeing Greek meet; global activity picking up: NAB

Global markets are eyeing the euro group meeting today as Greece is yet to be given any aid. The Spanish elections on Sunday have not been vey good adding political issues to already economically fragile country.

In an interview with CNBC-TV18, Nick Parsons of National Australia Bank discussed issues leading the market lower today. "There is some nervousness around the Greek meeting today. We may run into a lot of buying interest on any dips from here. The dips will be limited because most investors don’t own the market," he added. Meanwhile, he pointed out that couple of economies like China, Europe and Germany are recovering and therefore he thinks that the global activity is picking up after a late summer lull. Below is an edited transcript of Nick Parsons's interview on CNBC-TV18. Q: We had a stellar session in terms of US equities on Friday. Europe too was supportive; the German IFO data was very supportive. What is leading the market lower today? A: Last week was the second best week for equities this year across most major markets. We have seen a slight pullback this morning, but here the international and institutional investors are very much underweight of risk, they are underweight to global equities. There is some nervousness around the Greek meeting today. We may run into a lot of buying interest on any dips from here. The dips will be limited simply because most investors don’t own the market. Q: The underweight on equities was because Greece has not yet been given its aid. The fact that Draghi was available for the market is now an old hat, priced in September. What was the new joy for the market last week and would the fact that Greece has not been given its 31 billion euros be a persistent worry? A: Those are very good points, ofcourse we have to take those onboard. What did change last week was the data. The economic data around the world got somewhat better. Chinese PMI numbers were above 50. The European PMI manufacturing numbers were all better than what had been feared. The German GDP number on Friday was substantially better than it looked. So, there is a sense here that global activity may just be picking up after a late summer lull. If we can get a turnaround in the data then we know that at some point Spain will get its bailout money.  At some point a deal will be done on Greece and in EU budget deal will also be signed into law. So, the things that we are worried about have huge tail-risks that could promote some downward lurch in global markets, all seem to be slowly heeling themselves. Yet at the same time the data flow appears to be turning a little more positive and that is the key to asset markets. _PAGEBREAK_ Q: You don’t think the Catalonian elections would be a problem area for Rajoy? Spain has still not asked for a bailout. Do you see any possibility emerging after the Catalonian elections are over? A: There are two ways to look at the Spanish elections. One, there is some disappointment for the pro independence parties because the main party actually saw its share of seats in the parliament fall quite sharply. You just had over 60 seats; it will now be left to somewhere near 50. So, on one side you have some disappointment, on the other the four pro independence parties together have got around 64 percent of the popular vote. So, the message is mixed at best. There is certainly some support for independence, but that support is unable to rally politically around any one strong personality or group. Therefore, give that you have got the fragmentation, which is probably the best result that Rajoy could have hoped for and are going to see it die as a reason to be negative on assets. The negativity, the pessimism is ebbing. There is no fresh bad news. It seems that we are not getting new disappointment on a daily basis and against a background when investors are short, that’s quite helpful. Q: Would you see more headroom in developed market equities like US and Europe? Secondly, after a fairly decent outperformer, the Indian markets in November have slightly underperformed other Asian markets, certainly last week. So, if the risk is led by superior performance of Europe and US, then logically Taiwan and Japan will do better than India, so will India’s underperformance stick? A: India’s underperformance has been, if not puzzling then certainly explained by the performance of its currency. Starting November, the rupee was trading at 53/USD. In the first week of November we were down at 53.80/USD. Today we are up at 55.60/USD. There were some signs earlier last week that it may just be turning down and we could be trading into the 54/USD again. At 55-56/USD there is not enough positive momentum in the local currency to make international investors think, we are going to put some money in India from here. Equity market outperformance is going to require currency inflows, it needs overseas participation. Unless we can get the rupee trading back on to 54/USD, big figure, the overseas participation is not going to be there. So, we don’t have currency weakness that is sufficient to cause people to significantly revise up their earnings estimates which we are getting in Japan. We have not got such extreme currency weakness that the fundamental earnings improvement is going to come through. We haven’t got enough strength in the currency that’s going to make people, the momentum traders decide that over the next two or three weeks we are gong to see a bit of local outperformance. So, we are stuck in a no man's land here for the Indian markets.