See good opportunity to buy in consolidating market: Expert

The ECB Governing Council last week decided to leave the euro zone interest rates unchanged at 0.75 percent, pointing to signs of stabilisation in financial markets, yet still a weak economic recovery. In an interview to CNBC-TV18, Patrick Legland, global head of research at Societe Generale said that the global market is in a consolidation phase, though the appetite for risk still persists.

"Global investors are still massively underweighted in equities. They are also massively underweighted in emerging markets and we would see this strong consolidation as a good buying opportunity in the future," Legland adds.

Below is an edited transcript of Patrick Legland's interview on CNBC-TV18

Q: There has been a little bit of quiet in the global markets, the Federal Open Market Committee (FOMC) minutes created a bit of a flutter, but after the fiscal cliff we did not had any strong risk on or risk off initiatives from global markets. What are the markets watching out for now?

A: At this stage, we are in a consolidation phase for global markets; however appetite for risk is still there. Global investors are still massively underweighted in equities. They are also massively underweighted in emerging markets and we would see this strong consolidation as a good buying opportunity in the future.

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Q: On January 30, a lot of banks will have the option of repaying back the long-term refinancing operations (LTRO) money. Do you think that will cause some volatility? Banks looking to pay up a big tranche could suck out some of the liquidity in the system?

A: I don't think so. Certainly fears about the banking system globally are reduced. We are seeing central banks being very active and I don't think that investors are still worried about the assets of this market segment. Certainly that will be the next stage of growth, particularly for Europe. We are confident on the US where we expect a rebound in GDP in second half of the year; Europe is certainly the centre of attention where we need to see an improvement in the middle of the year to support risky assets.

Q: Consensus was that European Central Bank (ECB) will not change rates this time around even after the ECB decision and the commentary there. The euro-dollar has moved to nearly 1.34 now. What was the market pricing in? Was there an expectation that rates could be cut in the later half of the year?

A: We have a combination of two things, on one side the markets continue to price a cut of interest rates by ECB at some point in the next quarter, but on the other side the market realise as well that the situation in Europe has massively improved. The fundamentals are coming back in positive territory and we see step by step regulation coming for risky assets for banks and all this is very positive for the markets and overall for the foreign exchange (FX) markets as well.

Q: What is the next market moving event you are watching out for?

A: There is a consensus that Europe might be in the next few months at a trough. It will need to be confirmed because we might have better figure for the second half of the year if the US is in the region of 3-3.5 percent gross domestic product (GDP) growth in the second half. If we continue to have good momentum for emerging markets it should trigger rebound for European economies which could be positive. This is certainly what the market will be seeing in the next few months.

Q: You said that the market is hugely underweight equities, developed market equities as well as energy. What kind of crude prices are you looking at? You are looking at smart money moving into equities, what would be the levels you would look at in crude?

A: We are quite cautious because we expect shale gas to come on stream in the next few years. We expect global consumption to ease particularly in developed markets with new energies coming on stream. If we take all this into account we do not recommend oil as an asset class.